Park Ridge IL Medicaid and Estate Planning Legal Blog

Q: What kind of financial planning should I have if I have a special needs child?

While estate planning is important for all parents to safeguard the futures of their children, special needs planning is vitally important for the parents of special needs children.
Read more . . .

Can a disabled person and their family save money without jeopardizing their government disability benefits?

Special needs planning in Illinois just became a bit easier for some disabled people and their families.

Until recently, government benefit programs for the disabled such as Medicaid and Supplemental Security Income (“SSI”) have limited the recipient’s total personal assets to $2000. With such a low total assets cap, and with the devastating penalty of suspending government benefits for exceeding that $2000 limit, disabled recipients and their families weren’t able to save money for a rainy day or any of the disabled person’s supplemental needs.
Read more . . .

Mary recently visited the office attorney because she was confused. Her husband had been admitted to a nursing home, and Mary had been approached by the home’s caseworker. The caseworker asked for Mary’s financial information, and inquired how she intended to pay for her husband's care, which would total more than $8,000.00 per month. She asked if Mary was going to apply for Medicaid, and that question was the source of Mary’s confusion. Her attorney explained to Mary that Medicaid is a government program to help pay for nursing home costs, but to qualify, Mary had to meet certain income and asset restrictions.

Mary was even more confused. She told the attorney she was already on Medicare and that she didn't know why she had to do anything else. She asked, “Why isn't Medicare paying?” Mary’s attorney explained that Medicare is health insurance for individuals over 65 or those who have been disabled for two years. Medicaid, on the other hand, is a social program to pay for people with few assets or low income to ensure they have proper health care, including nursing home care. Mary didn't know what to do. She didn’t think she had the money to pay for her husband’s care, but her attorney had mentioned that she wasn’t currently eligible for Medicaid benefits because she had too much money to qualify. He went on to explain how Medicaid planning works by sharing with Mary the information that follows.

There are two elements associated with Medicaid planning: the legal strategies needed to qualify for benefits, and the actual application process.

The first step of the planning is to make a series of legal and financial decisions that will result in Mary's assets and income qualifying for Medicaid. There are several legal strategies to choose from, including the use of certain types of trusts.

For many clients the process seems overly complicated. Fortunately, it is possible to calculate and explain what assets are at risk and what assets would be immediately protected. It is also possible to determine when a person needing nursing care will qualify for Medicaid, and how to ensure that Medicaid begins paying as soon as legally possible, to minimize the loss of assets to the spouse who still lives at home. This stage of income and asset adjustments will usually result in a period of ineligibility for Medicaid benefits.

The second step of the planning is the formal qualification and application process. After all ineligibility periods created during the planning process have expired, there is a specific qualification and application process to receive benefits. The MPN attorney can be retained separately to assist in the filing of the application for Medicaid benefits with the local Medicaid department so that the nursing home resident can begin to receive the benefits.

It’s important to understand that Medicaid planning to get the nursing home resident eligible for Medicaid in the future is separate from and different than actually applying for the benefits from the local Medicaid Department. In fact, the second step will not be necessary if the person under care returns home, or if he or she does not survive the ineligibility period created under the plan. Like most financial and estate planning, Medicaid planning is always better if done in advance. However, even if tragedy strikes unexpectedly, it’s good to know that there are still options available to keep from depleting your assets.

Would it surprise you if your professional advisor recommended “special needs” planning when you don’t have any special needs children or grandchildren? It’s important to think about what might happen to your loved ones after you’re gone, that would impact your estate plan. We try to plan for unforeseen financial circumstances, and thus build into our plans some creditor protections for our beneficiaries whenever possible. The same type of preventive planning can be done to protect loved ones in a tragedy that leads to physical and/or mental disability. Consider what happened with the estate plan of John and Elizabeth.

John and Elizabeth had three children: John Jr., Michelle, and Jerry. Their estate planning attorney prepared a living trust that passed their estate in equal shares to the children in trust. At John and Elizabeth's death, the estate, which was estimated at $2,100,000 after taxes and expenses, would be divided among the children   $700,000 to each of their trusts, which they were free to spend as needed.

The trusts for the children provide that if John Jr., Michelle, or Jerry passes away, anything that’s left in their trust will be distributed to their own children. All three of John and Elizabeth's children had children of their own, and everyone in the extended family was in good health.

One day John, Elizabeth, and Jerry were traveling together and were involved in a terrible automobile accident. John and Elizabeth were killed, and Jerry was injured so badly that he was no longer able to care for himself.

The person named as his guardian immediately sought help for Jerry's medical expenses from Medicaid or other means-based government programs. They were shocked to learn that Jerry’s entire inheritance of $700,000 would have to be spent on medical expenses before Medicaid would assist him. As an alternative, the guardian learned that the assets could be placed in a special kind of trust to be used for Jerry's benefit. But at Jerry's death, that trust must reimburse Medicaid for what was spent for care during his life. The result in either case is that little or nothing will be left for Jerry’s children.

This result could have been avoided by creating a special needs trust. A special needs trust is specially designed to hold the inheritance of a beneficiary, and to be used for needs above and beyond those covered by government programs. These trusts contain instructions that allow the Trustee to meet the needs of the beneficiary, but prohibit the Trustee from providing for those needs if already covered by Medicaid or other programs. It also prohibits the Trustee from using the assets to reimburse any government program after the beneficiary’s death.

John and Elizabeth could have included instructions in their living trust that if one of their children were disabled, their share of the inheritance would pass to a special needs trust which could be used at the discretion of the Trustee. The result in Jerry’s case would be that his needs would be met during his lifetime, and anything left over at the time of Jerry's death could be passed on to his children.

"The stairs are getting to hard to climb."

"Since my wife died, I only eat toast or soup for dinner."

“I can’t imagine moving after all these years. This is my home.”

These are just a few of the common concerns we hear. Sometimes we hear them from our older clients, and other times these concerns are voiced through our younger clients trying to help their parents with difficult decisions.

Given the choice, most seniors want to continue living in their own home rather than moving in with a relative, or going to an assisted living facility or nursing home. Unfortunately, that choice is not always available. But when it is a choice, it is usually because there are local resources available to provide certain critical services.

When thinking about whether “staying at home” is feasible, start with these issues:

• Medical

The first time the question arises about staying at home is usually after some sort of medical problem or scare. It could be a stroke or heart attack, or possibly the onset of dementia. Or it could be as simple as Mom or Dad forgetting to take their medicine.

The first question to ask is whether the medical problems are serious enough that they present a safety issue. Start by talking to a doctor about how the specific illness or behavior might affect the ability to stay at home.

• Current Needs

If you determine that it is possible to stay at home from a medical point of view, the next thing to do is to analyze your current needs. Think about the services or personal care you require, and who might be available to provide. Areas to consider include:

• Personal care including bathing, hair care, and dressing.
• Homemaking including housecleaning, yard work, grocery shopping, and laundry.
• Meal preparation and cleanup.
• Money management including bill payment, check balancing, and filing medical claims forms.
• Medical care and medication management.
• Mobility both at home and in town. Is driving still possible? If not, is public transportation or ride-sharing an option?

No solution is ideal. But for those who want to stay in their home, the reality is that outside service providers are often needed to take care of the critical issues.Some of the best places to look for these service providers include:

• Friends and people you know. It may be that a neighbor is experiencing similar issues and may have found a good source for assistance. You should start with someone you know who is satisfied with the care and service they are receiving.
• Community and local government resources. Most communities have a variety of services available to residents, and local healthcare providers and social workers may have suggestions. Often your community will have an Agency on Aging or similar government agencies who maintain a list of service providers. If you belong to a religious group, check with their local office to see if they can provide you with relevant information.

More and more you will find people known as “geriatric care managers” who can help you identify and engage local service providers. They can also work with you to form a long-term care plan. They charge for this service, and it probably won't be covered by any insurance plan, but they can be very helpful. They also can check with you from time to time to make sure your needs haven't changed.

Unfortunately, even if you are able to assemble a team of service providers, there is almost always a limit to the funds you have available to pay for these services.

Some services are more expensive than others. Some services are provided for free. Some services are covered by Medicare, private "Medigap" policies or other private health insurance, Medicaid, or long-term care insurance. Others are not. Determining the costs and how you are going to pay for the help you need, is an important part of planning.

Keep in mind that paying for just a few services out of pocket could cost less in the long run than moving into an independent living, assisted living, or long-term care facility. And you will have your wish of being able to stay at home.

Linda and her daughter Nicole visited the office of an elder law attorney. Nicole was concerned because her mom recently entered an assisted living facility and did not have sufficient income to pay the monthly cost. Linda only had $90,000 in assets and her monthly shortfall to the assisted living facility was $1,300. Linda knew her assets would not last long and she wanted to make sure she had as many options as possible.

After a brief conversation with the attorney, she discovered that Linda’s husband was a veteran of the Korean War. Even though Linda’s husband died eight years ago, the attorney was excited to tell them that Linda may be eligible for a little known but important benefit of up to $1,094 per month from the Veterans Administration. Linda was confused as her husband was not retired military. She had talked to the Veterans Administration and was advised no benefit was available to her. The attorney explained that the benefit was for veterans or their surviving spouse to help pay medically-related expenses, and while Linda was not currently qualified for the benefit, the attorney told her that with some simple planning, she could be eligible in less than 30 days.

In order to qualify for this benefit, three criteria must be met. First, the veteran (Linda’s husband) must have served a minimum of 90 days in active duty. Linda was confident this requirement had been met. The second requirement was that at least one of the 90 days of active duty must have been served during wartime. Since Linda’s husband served in the Korean War, she was confident he had met that condition. The third requirement was that Linda must be able to meet certain income and asset criteria. Linda became concerned because the attorney told her that she had too much money to qualify. He did assure her that with some simple planning, she would be eligible within 30 days. Linda was ecstatic. She began planning with the attorney immediately and he assisted her in applying for benefits the next month. Linda now receives $1,094 each month from the Veterans Administration to help pay for her assisted living care. Linda was relieved to know that the benefit would continue even if she was able to return home. Both Linda and Nicole were thrilled that they were able to preserve Linda’s assets and provide her with many options for the long term.

A surviving spouse, who qualifies for this Veterans’ Aid and Attendance Benefit, normally would receive $1,094 per month as a surviving spouse of a veteran. A single or widowed veteran may receive up to $1,704 per month. If the veteran is married, he or she can receive up to $2,020 per month.

 

We get many questions about long term care insurance. Here are some of the basics you need to know.

Why long term care insurance?

The cost of long term care from an illness, a devastating accident, Alzheimer’s or other problems can take an emotional and financial toll on you and your family. And care can be needed at any age.

Long term care insurance can help to mitigate the financial drain which may, in turn, decrease the emotional stress. The benefits very often outweigh the costs.

Here is a true story related by one our colleagues.

At age 54, ten years before her retirement, Fran, a divorced single woman and librarian in the public school system, sat down with her son and wanted to know if she should purchase long term care insurance. She did not know if she could afford it and after all, being single, why would she want it. She was a very intelligent woman and in very good health.

Her parents left her an inheritance and it was her goal to preserve that money for her retirement and to keep the money in the family so that her children and grandchildren could benefit from it. She wanted it to be used for things like education or a down payment on a home.

The long-term care insurance would provide preservation should an illness strike. Her parents lived to ages 85 and 87. Why wouldn’t she? So she bought the Cadillac of policies and paid the premiums year after year, even though at times she felt they were a waste and that she should cancel the policy.

She retired at 65 and went on to participate in world travels to complete her family’s genealogy and to become a successful race walker. She competed competitively in the senior Olympics, where she won numerous gold medals. A very proud accomplishment.

In just a few short years, her life would take a turn that none of her children could imagine possible. She was struck with an aggressive form of Alzheimer’s that took her life all too soon. Within three short years, she was placed in a long-term care facility, an Alzheimer’s unit and then a hospital. The cost of care exceeded $400,000. Had she not had the long term care insurance, which covered every penny, her goal of preserving her parents inheritance would have evaporated.

Whether it is preservation, maintaining lifestyle, supplementing cash flow needs, or for other reasons, long term care insurance can play a crucial role.

How do you choose the right policy?

Financial Stability

As with any major purchase, it makes sense to buy from a company that can stand behind its promises. While no one can guarantee that a specific company will be around in the future, you can minimize your risk by doing business with a company that has a solid financial track record.

There are 5 main rating companies in the market place that look at the financial security of insurance companies. These are Moodys, Standard & Poors, A.M. Best, Fitch and Weiss. Ask for these ratings as you research long term care companies. There is also a company called Comdex which aggregates the ratings from the various rating services into a single ratings number. Use the Comdex score as a way to compare one company to another.

How much will the policy benefit be?

Long term care policies often provide a daily benefit up to a specified dollar amount for a specified period of time. For instance, a policy may provide $160 per day for up to three years of coverage. The higher the daily benefit, the higher the premium.

Does the policy cover care “at home”?

You can purchase a policy that covers only nursing home care. You can also purchase a policy that will cover you for home health and assisted living care. Again, the increased benefits equal higher costs. Check out different carriers to see which ones offer the benefits you would like to have.

When do benefits start?

Before you are eligible for benefits, your health would have to deteriorate to the point where you are suffering from a cognitive impairment or have a need for assistance in two or three activities of daily living. The activities include things like dressing, eating, moving around your home, bathing, toileting, etc.

Check each policy to see what the requirements are. Remember that the greater the requirements, the more difficult it will be make a claim.

What happens if the cost of your care goes up?

Many policies today have an inflation rider which can be added to the policy to provide additional protection, usually at an additional cost.

The rider increases your benefit each year. Of course, the increase may not be enough if health care costs increase faster than your inflation rider.

How long do you have to wait until your coverage can start?

Most policies have some waiting period before the benefit begins. This keeps the cost of insurance more affordable, much like a higher deductible on your car insurance or health insurance can keep your premiums lower.

Generally, the longer the elimination period, the lower the premium.

How hard is it to collect benefits?

For some companies, the claims process is easy. You submit the documentation and they pay. Others make the process more difficult. Two articles are worth looking at. The first from the New York Times in 2007 is here and another from the Wall Street Journal in 2011 is here.

Remember that some claims are denied because applicants did not disclose their entire list of medical issues. If the insurance company discovers a misrepresentation, they likely have a right to deny the claim. So best to be up front when applying. Even if you are denied, you will know where you stand and can plan accordingly.

Can premiums increase?

One of issues with long-term care insurance is that premiums can increase over time. As companies learn more about their claims experience, they may need to raise rates from time to time.

Several companies recently filed for rate increases and the industry expects this to become part of normal practice. The downside to this is obvious. The upside is that companies who increase premiums to their proper level, are much more likely to be around to pay claims if and when you need the coverage.

If you can afford it and find the idea attractive, check out companies that offer a 10 pay option which means you pay for 10 years and after that, no more premiums and no chance of increased rates.

The key to remember is that the need can arise at any time. If protecting your assets is important to you, long term care insurance is a tool that should be looked at as part of your overall protection strategy.
Only an attorney or agent who is accredited with the Veterans Administration can assist with the application for benefits. As an accredited attorney, he/she is unable to charge Linda for any work assisting with the application.

A colleague of ours recently assembled a list of the top 10 estate planning issues. This list is a great tool to assure that nothing is overlooked.

All of them can be dealt with a little thoughtful consideration. They can also create major problems if not dealt with in advance.

Probate – Court supervised administration of your estate is never a pleasant journey. Despite the helpful court personnel, there are still filing fees, lack of privacy issues, and long waiting periods before distribution. And that’s if all goes well.

Asset Protection – Many people do not take advantage of the asset protection opportunities that can be achieved with relatively basic estate planning. Creating trusts for spouses and children with the right provisions means your assets can be protected from claims of creditors and predators for years to come. While we hope that our children would not fall victim to divorce, this is one asset protection conversation that must be planned for.

Tax Planning – This is never an easy issue as the various tax systems don’t always line up with each other. Consider the tension between gift planning, (giving away some of your assets) to shelter appreciation by moving them outside of your estate, and loss of basis for capital gains purposes. While not easy, this issue can really cost you money if not properly handled.

Family Disharmony – Estate planning is a way for you to say you care about your loved ones. But choices you make for executor or trustee can bring back lots of bad memories for those not chosen. Giving thought to how to help resolve these conflicts or at least, not make them worse, can help to avoid family conflicts.

Attorney's Fees – The best way to control legal fees is to incur them while you are alive and able to oversee the planning process. Failure to plan is likely to increase the total amount of fees paid. Especially if family members decide that fighting is the best way to resolve disputes after you’re gone.

Successor Fiduciaries – Make sure that you name back up executors and trustees, or provide the beneficiaries with a way to fill a vacant role, so that a court proceeding is not required.

Contingent Beneficiaries – Make plans for your estate in the event that your immediate family members die and are unable to inherit your estate. Pick a charity or a group of more distant relatives or close friends.

Updating Beneficiary Designations - Life insurance and retirement accounts are controlled by the beneficiary designations you make when you purchase the life insurance or open a retirement account. They are most notably the small boxes you checked at the end of your application. Make sure these stay updated. We have seen more than once a policy which still names a client’s first wife or husband many years after a divorce and remarriage.

Joint Accounts – Often used as a convenience during life and a will substitute at death. Because these accounts go to the survivor, make sure that this lines up with your overall plan of passing assets to your heirs. Leaving money in a joint account for one child with the idea that they will spread the wealth around after your death can be a recipe for disaster.

Failing to start - Procrastination is probably the leading cause of problems in estate planning. Once a disability or death occurs, planning becomes very difficult and lots more expensive, if possible at all.

This story is based on a real case involving a man who created a solid plan for his estate that, unfortunately, went completely wrong.

Here is what happened.

In 2005, Tim Donovan, owner of Optimum Manufacturing, created a will leaving everything except his business to his second wife, Cathy Carter.

Tim left instructions in his will, which was part of his overall estate plan, that his business should go to the trustee of his living trust after his death. One would wonder why he left his business in his will, exposing his business to the general public upon his death instead of a more private document, such as a trust. Tim also left specific instructions on what the trustee was to do with the business in the event of Tim's death.

Thinking that it might be difficult to keep the business running without him, Tim instructed his trustee to sell the business. After the sale, all of the proceeds were to be divided as follows:

45% to his wife Cathy

25% to his mother

20% to his brothers and a niece and nephew

The remaining 10% was to be held in a trust for his wife, Cathy Carter.

Tim had no children from either of his marriages.

The good news was that in 2008, Tim sold his business for a substantial sum.

The bad news was that he died unexpectedly in a plane crash in 2009.

You would think that this should not be a big deal. Tim made his wishes clear. The money he received from the sale of the business should be divided as set out in his trust.

Tim’s mom and other close relatives sued the estate claiming that Tim had intended that they get a portion of the sale proceeds, even though the business was sold before Tim’s death rather than after.

Cathy, his wife, argued that Tim did not own the business at the time of his death and so therefore, there was nothing to leave to the trust and nothing to divide.

What did the court decide? The Court said that since the business stock was a specific gift or property that did not exist at the time of death and since no changes were made to the will or trust, Tim must have decided not to share the proceeds as he had previously outlined.

For some, this outcome may seem to be lacking in fairness. On the other hand, it may have been exactly the result Tim would have wanted. We will never know.

The lesson for us all is that if changes in your life happen, as they always do, it makes sense to visit with counsel to make sure that there are no negative impacts that result from the change and to assure that your intentions are clearly documented.

Some examples of changes that may impact your planning and suggest the need to seek counsel include:

Death of a spouse or child Disability

Divorce (including divorces your children may go through)

Birth of a child

Significant change in health for you, your spouse or your children

Entry into a nursing home

Loss of a job

Lawsuit

Retirement

Sale of a business or sale of another significant asset

Estate planning includes planning for events during your lifetime. Request a meeting today.

Some of our clients are young parents. Often times as they start out in life they have a small home or condominium and a large mortgage to go with it. They have not yet had time to accumulate a large pool of assets. But most have life insurance in place to create an instant estate in case they die. The insurance can be used to pay down debt (like a mortgage) and to provide a pool of money to pay ongoing lifestyle expenses, educational expenses or for other legitimate reasons.

Often, these clients ask whether they should use a living trust, even though life insurance is their only major asset.

Most think the answer is no when in fact it may more correctly be yes. Here is why.

A life insurance policy will pass to a designated beneficiary without going through the probate process. 

However, if you have minor children who are the beneficiaries of that life insurance policy, the life insurance company will generally not distribute those policy proceeds to a minor. 

Instead, someone usually has to go to court and set up a guardianship on behalf of that minor.  If you fail to plan properly, you may end up with a guardian appointed by the court, and that guardian may be someone you would rather not have controlling that minor’s money. 

Once the guardianship is set up, the court will often try to protect the money in a closed account that can only be accessed by court order.  Whenever that minor needs that money for things like braces or medical care or education, the Guardian must petition the court to access the money.  Plus, there is a cost for ongoing attorney’s fees and court costs.  Then when the minor reaches the age of majority (18 in most states), the law goes to the other extreme.  The money is then given outright to the minor with no instructions and no control. 

When you have a living trust, you can name the trust as the beneficiary of the insurance policy.  The trustee then uses the money to provide for the beneficiaries of the trust according to your instructions.  No guardianship or court intervention is required. And if there is money left over when the child turns 18, it can be released to the child or held in trust to pay for things like college, weddings, etc, all as per your wishes and instructions.

In most cases, a living trust will be the best way to plan for your minor children. It also will serve as a great foundational estate planning vehicle as you start to build your other estate assets.

Dad needed round the clock nursing home care.

Bob was dealing with the financial aspects of his dad’s care. His sister, Jean, was dealing with the emotional impact of what her father was going through as the primary caretaker. Bob got advice from his father’s attorney, a man who had done his parent’s wills and had been with the family for many years. As it turns out, Medicaid planning was not his specialty.

Jean insisted that she and Bob get a second opinion from another attorney in town, who was well known for expertise in Medicaid. After a long discussion, Bob agreed. He called the Medicaid attorney’s office to schedule an appointment and joked that the only reason for the appointment was to satisfy his sister’s request and move on with the process.

Bob had already been told by his father’s life long attorney that they would lose over $300,000 in assets and it would take 60 months or until they ran out of money in order to be eligible for Medicaid. He also shared that the local office of the aging told him to transfer the house so it would be protected. Bob trusted the family attorney and the local office of the aging and unfortunately believed them.

The client service administrator for the Medicaid law firm explained that the attorney could provide a complete analysis of his dad’s Medicaid eligibility if she were willing to complete a simple one page form. In less than twenty-four hours after receiving the Benefits Eligibility Form from Bob, they provided Bob and Jean a written analysis that concluded that their dad could qualify for Medicaid immediately, without losing any of the family savings or transferring the house.

Bob was in shock and in fact, a little angry. He thought it was a ploy by the Medicaid attorney to get him to hire him. He returned Bob’s call and explained that not only could the family achieve that result, but that it was completely legal under the law so long as all rules were followed properly in filing the application.

Bob asked why he should believe him when their family attorney and the local office of the aging told them something different? He did not know who to trust. The attorney asked Bob which result he would like better, the one depleting $300,000 of the family’s assets and needlessly transferring the house (which would have immediately disqualified Bob’s dad from receiving Medicaid), or the one that allowed his father to keep hold on his life savings and live life with dignity.

Although names and identifying facts have changed, this is a true story.

Every day we face tough choices like these. It is often the caregiver or the children who are forced to make these decisions. Without proper counsel and expertise many things go wrong that could have been avoided. Family wars break out because everyone wants to do what is best but no one knows how to achieve it. This is true not only for Medicaid planning but for planning in general.

Preserving the family assets provides options for the family they did not know were possible. The mistake the family attorney made was not knowing the exception Bob’s dad fell under that legally protected all the family assets immediately. Medicaid law is complicated and each individual’s qualification is determined on a case by case basis.

There is NO rule that qualification takes 60 months if assets are transferred and most social workers and health care agencies lack the legal knowledge to provide accurate advice.

A qualified Medicaid planning attorney should be able to provide a timely answer to eligibility that outlines the assets at risk to being lost, when eligibility can be obtained (it’s rarely 60 months) and the assets that can be protected.

Preserving and protecting a lifetime of one’s work is not an easy task. If you or someone you know is facing this situation, let them know that there is hope.