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Preparing Asset Inventories When on the Long -Term Care Journey

October 27, 2021

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In most people’s experience the creation of an asset inventory may seem to consist of nothing more than creating a list of assets.

However, in many cases, nothing could be further from the truth.

Some Issues that can Complicate Your Asset Inventory

The preparation of an asset inventory will depend, in part, on what the purpose of the asset inventory is for. There are many times in life that the preparation of an asset inventory is necessary, but the purpose for which the inventory will be used can vary.

For example, it is important to create an asset inventory at various times that include but are not limited to the following:

When you are ill, and high-cost long-term care costs may loom in the future.
When you are looking to establish eligibility for Medicaid for long-term care in either a supportive living facility or a skilled nursing facility.
When you’re contemplating transferring the responsibilities of conducting your affairs to a fiduciary such as an agent under power of attorney, a guardian, or a trustee.
When you’re doing estate planning both for disability planning and death disposition.
When you’re doing estate planning for the minimization of federal and Illinois estate taxes and income taxes
When you are doing estate planning for asset protection purposes.
When you’re doing estate planning to avoid probate.
When you are attempting to refinance.
Also, there are many other instances when an asset inventory is important especially in the commercial sector when financing is involved.

As an Elder Law attorney, I will focus momentarily on challenges faced by our clients that are seeking Medicaid for long-term care. Often, we are seeking to assist clients with specific issues involving asset inventories. In cases involving individuals who are applying for Medicaid, their asset level must be down to $2,000. Quite often the easiest way to get to those lower asset limits is to liquidate assets and convert to cash. However, in doing so, various issues arise, some of which I will describe below:

Any liquidation of any tax qualified retirement account such as a tax qualified annuity, 401(k), IRA etc. will trigger tax, except for a few exceptions. Quite often however, our clients are not sure whether their accounts are tax qualified or not. Hence the need for a thorough asset inventory.
The payment of debts prior to the filing of the Medicaid application for long term care, must be given adequate attention regarding the order in which debts are paid. Sometimes certain creditors have priorities over other creditors. Any failure to recognize these priorities and creditors can result in allegations of a fraudulent conveyance. Pay attention to due on sale clauses, and covenants in various contracts dealing with early prepayment.
In the liquidation of assets, sometimes there are penalties associated with early liquidation. For example, annuities can have early withdrawal penalties and surrender charges. Sometimes notice has to be given before you can exit from the contract.
Payment of outstanding debt such as credit card debt, mortgages and HELOC (home-equity) loans, may become an important part of your overall strategic spend-down plan when you’re seeking governmental benefits. In trying to reach the correct statutory asset limits for a spouse for example, paying off existing debt is often a wise choice in attempting to reach the correct asset limit.
Long Term Care Insurance can and should be considered an asset and income source for certain governmental benefits, but make sure to understand when and under what circumstances the policy terms will make payment available. Some policies are very strict regarding their elimination period (which is a form of deductible before payment starts 30 days, 60 days, etc.). Also, there are often restrictions on where and what the payments can be made for.
When seeking needs based governmental benefits like Medicaid, be sure to review of prior years’ account statements to determine whether there are prior transfers or gifts and other uncompensated transfers of cash or property that can make Medicaid eligibility impossible is such transfers were made within the past 5 years. This” lookback period” is often referred to as the 5-year Medicaid lookback period. This lookback period can be a liability when you look for Medicaid eligibility for long-term care, that results in a delay of the commencement of your monthly Medicaid payment.
Homes and principal residences may need to be listed for sale when an individual seeks Medicaid eligibility, unless occupied by certain allowable individuals such as adult disabled children, spouses, or minor children.
Business assets may also need to be listed for sale.

In SPOUSAL cases:

In a spousal case, if you are going to apply for Medicaid for an ill spouse, then the ill spouse may have to liquidate or change the form of ownership of certain tax qualified assets such as IRAs and 401k. However, with IRA’s and other tax qualified retirement accounts we do not want to trigger the payment of taxes sooner than is necessary since the ill spouse may still be residing either at home or in a facility that does not take Medicaid or where no Medicaid eligibility is possible. Why pay tax to the IRS earlier than you need to?
Eventually however you may begin the process of transferring the IRA from the ill spouse who may be entering a long-term care facility to the healthy spouse who may still be living in the community by relying on the provisions of a properly drafted power of attorney for property. However, to accomplish this, it will be necessary to have specific gifting provisions in the power of attorney for the ill spouse, to make such a transfer from the ill spouse to the healthy spouse. If such power of attorney does not exist or does not contain specific provisions allowing such gifting, it may be necessary to seek the assistance of the guardianship court to accomplish such a transfer.
When transferring an IRA from a living ill spouse to the healthy spouse, be prepared to incur the triggering of all deferred income tax (for example say, 20% or more).
Remember many IRAs are structured as “IRA annuities” by your financial adviser, and there may be penalties and surrender charges on the transferring of such IRA annuity or the cashing out of such an IRA annuity.
Illinois Medicaid regulations provide that if the community spouse can remain living in the family home, then the community spouse is entitled to retain $109,560 of the couple’s nonexempt assets in addition to the family home, an automobile, personal and household effects, and Medicaid compliant prepaid burial arrangements. Because of these asset limitations, which may be exceeded under certain circumstances with careful planning that is authorized under the Medicaid regulations, it is crucial that you be thoughtful in inventorying your assets, and then transferring assets from one spouse to the other.

Conclusion:

As we indicated at the outset, the task of preparing an asset inventory should not be that complicated.

The difficulties come in when one seeks to re-position or transfer certain assets that are found in your inventory.

Many assets have contractual constraints, deferred tax implications, or problems with access before the assets can be freely used for the benefit of you and your loved one.

Be complete in the inventory of your assets and consider seeking professional guidance to deal with any complicated assets in your asset inventory when you or your loved one is on the long- term care journey.

Anthony B. Ferraro
Elder Law and Estate Planing Attorney
Partner at DiMonte Law Firm

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Dementia, Alzheimer’s, and Diminished Mental Capacity: How it Affects Your Patient, Resident, Client, or Loved One on the Long-Term Care Journey

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August 25, 2021

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Dementia, Alzheimer’s, and Diminished Mental Capacity:

How it Affects Your Patient, Resident, Client, or Loved One on the Long-Term Care Journey

By: Anthony B. Ferraro

Navigating the Long-Term Care Journey

In the previous installment we mentioned how important it is to begin senior estate planning or traditional estate planning with the execution of powers of attorney for both property and healthcare matters. Quite often we take for granted the notion that these documents will be something that are easy to have signed.

However, when a person has diminished mental capacity, sometimes it can be difficult or impossible to have such documents executed by a patient, resident, client or loved one because they no longer possess the required cognitive capability to sign the documents legally and ethically.

This is an impediment, even if we know that the documents would be good for them to have. If cognitive capacity does not exist, the documents cannot be signed, legally or ethically, even if the individual can go through the physical motion of signing their name. This is because even though they may be able to sign their name, they may not understand what it is they are signing.

Sometimes circumstances are very clear-cut as to whether mental capacity exists, but sometimes the facts surrounding behavior are not so clear or not so well understood.

What can be done then?

In situations where it is not clear as to whether a person has mental capacity, the attorney may need to seek consultation from a medical professional or mental health expert.

If a formal assessment is required, the attorney usually attempts to obtain the consent and cooperation of the client, if that is possible. Sometimes this can be upsetting or embarrassing to a client. Nevertheless, the determination of mental capacity is something that must be established before other matters encountered on the Long-Term Care Journey.

Assuming that either the consent of the client is obtained, or perhaps the client cannot consent, then who should a lawyer look to as a referral for consultation on matters of diminished mental capacity?

If the patient, resident, client or loved one is fortunate enough to have a physician regularly attending to them, then reaching out to that physician may be the first order of business. Sometimes however, primary care physicians may decline to opine on matters pertaining to mental capacity as they may feel that they are not trained sufficiently to administer psychiatric, neurological, and psychological assessment tests.

It should be noted that effective January 1, 2023, the State of Illinois passed a new law indicating that any person seeking licensure to practice medicine in all of its branches is to have completed three hours of education on the diagnosis, treatment, and care of individuals with cognitive impairments, including, but not limited to Alzheimer’s disease and other dementias. Illinois Senate Bill 0677.

If the attending physician will not undertake the assessment, you may look to other geriatric assessment professionals that can often take a multidisciplinary approach to determining mental capacity.

Keep in mind that the determination of mental capacity is sometimes complicated by the fact that mental capacity
can vary from day to day and can vary from task to task. This means that an individual can have the capacity for one type of task, for example, the execution of a power of attorney for healthcare, but may not have the sufficient capacity for the execution of a power of attorney for property that has gifting and asset repositioning authorizations written into the document.

Why the difference?

The reason is: the former task (executing a power of attorney for healthcare) has a lower cognitive capacity standard or threshold that must be met to establish capacity. The latter task (executing a power of attorney for property) has a higher cognitive capacity standard that must be met, which standard is, for example, closer to the standard that must be met to knowingly execute a contract.

These varying degrees of capacity are why it’s important to select professionals that are trained to parse the levels of capacity needed based on the specific tasks that are being contemplated. As you can see this can become complicated.

The Takeaway:

Obtain and sign powers of attorney for healthcare and powers of attorney for property, as well as any other applicable and appropriate estate planning documents that you need for either “senior” estate planning or traditional estate planning, as soon as possible. Waiting until a person one reaches the later stages in life, creates the risk that in those later stages, you may not have the requisite mental capacity to execute the documents that you need.

The problem that arises:

If you do not have the requisite mental capacity to execute documents legally and ethically, it may be necessary for counsel to engage in a protective action such as an expensive guardianship proceeding in the State of Illinois court system. For example, let’s assume the senior resides in the City of Chicago. At this time, in the Circuit Court of the County, the waiting period for a hearing on a guardianship petition can take as long as 4-6 weeks, or longer, due to tremendous case backlog in Cook County. This creates unnecessary expense and time delay that can be avoided with the timely execution of estate planning documents such as powers of attorney for property and powers of attorney for healthcare.

In our office we recommend people execute powers of attorney when they are 18 years of age! Obviously, the type of powers of attorney that an 18-year-old may need will be quite different than that of an 88-year-old, but the point is you need to get these documents in place sooner rather than later.

Don’t fall into the trap of helplessness that diminished mental capacity can create and possibly be permanently locked out of your constitutional right to self-determination, regarding your own health needs, property matters, estate plan, and other related matters.

The Illinois Rules of Professional Conduct require attorneys to identify unsolicited communications to prospective clients as Advertising Material. If the context requires, please consider this letter and the enclosed literature to be Advertising Materials.

This document is for discussion purposes only and is not intended to be, nor should it be, considered as legal advice. You should never attempt Medicaid planning, Estate Planning, Probate or Trust Administration without the advice of competent legal COUNSEL.

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Revise Your Powers of Attorney Before Long-Term Care

By admin on

August 3, 2021

- Asset Protection, Chicago area, Chicago Elder Law, Chicago Elder law attorney, Chicago Suburban Elder Law Attormey, Chicago Suburban Elder Law Attorney, Chicago Suburbs, Chicagoland Elder Law, Elder Law Articles, Eldercare Attorney, Estate Planning, Estate Planning Attorney, Medicaid and Paying for Nursing Home Care, Nursing Home Admissions, Nursing Home Contracts, Probate, Estate, and Trust Administration, senior estate planning

Revise Your Powers of Attorney Before Long-Term Care

Anthony B. Ferraro

69-70% of people in the United States are expected to require assistance with some type of long-term care.

Do you have powers of attorney in place?

I know it sounds simplistic, and we have all heard this before, but perhaps the most important document that you can have before needing long-term care is the power of attorney.

Why is the power of attorney so important?

A power of attorney is a legal document where one person called the “principal” authorizes another person called the “agent” to act on their behalf regarding either financial or health related decisions.

Without these powers of attorney in place, no one may have the legal authority to act on another’s behalf and therefore a guardianship proceeding may become necessary. A guardianship proceeding is conducted in court and establishes a legal relationship where a person(s) is appointed by the court (usually a family member) as the guardian of the person that will have the power to make health decisions for another; usually called the Ward. The same person may also be appointed by the court as the guardian of the estate and can then make financial decisions and handle the financial assets of the Ward.

Guardianships can be expensive. They require the opinion of a physician and the appointment of a Guardian ad litem. Guardian ad litem is a court-appointed attorney who acts as the eyes and ears of the judge. Guardianships also require many process formalities and judge’s orders. These matters are strictly observed to ensure that the Ward is protected. This is all well and good, and we are all fortunate to have a legal system that can help serve those that are disabled and may not have had the opportunity to put in place powers of attorney. However, you may avoid this entire process by having a valid power of attorney for property and finance matters and/or a valid power of attorney for healthcare matters. Not only would that process be avoided but all affairs pertaining to your person and your estate can be streamlined while you may be temporarily sick, disabled, or if you need long-term care.

How many different types of powers of attorney are there?

In Illinois we have two types of powers of attorney: one for health and one for property and financial matters.

Sometimes these documents are called statutory powers of attorney and at other times these documents are called durable powers of attorney. The difference lies in the type of form selected to draft the power of attorney and the content of the document. Most of the time we recommend you stick to the Illinois Statutory Short Form Powers of Attorney (one for health and a separate one for property) because these are the type of forms that doctors, other health providers, banks and financial institutions most readily recognize.

Can I create my own powers of attorney?

Yes, you can.

However, they may not contain the necessary language that Elder law attorneys put into such documents such as: the power to make specific types of gifts to family members. This is necessary for tax minimization or for seeking asset tested government benefits like Medicaid. Other important language may deal with the power to remove and add assets to trusts, the power to apply for public benefits and the power to appeal any decision on public benefits. Standard power of attorney forms generally do not have these provisions built into them. By not having this language in place, many are missing out on benefits and protection.

How old should you be when you start executing powers of attorney?

Upon becoming 18 years of age.

Most people do not realize that once a child has reached age 18, no one, including parents, can make either financial or medical decisions for their children without legal documents, such as powers of attorney, authorizing this decision-making power.

Thus ask your children to get powers of attorney in place immediately upon turning 18 years of age.

Are their risks with Powers of Attorneys?

Yes.

However, many practitioners believe that having powers of attorney in place, with the appropriate safeguards, is less risky than not having powers of attorney at all.

So, what are the risks and the appropriate safeguards?

Since a power of attorney for property and financial matters authorizes your agent to be able to make disbursements of money on your behalf, this power, like any power, can be abused.

To prevent, or at least minimize the risk of a rogue agent from abusing their power, it may be useful to put restrictions in the powers of attorney for property and financial matters, including but not limited to, the following, as examples:

the agent could be required under the terms of the power of attorney document to provide monthly statements from all asset custodians to an independent third-party, selected by the principal who has the right to request the delivery of these monthly statements and will do an independent reading and review to determine whether the expenditures by the agent are solely for and in the best interests of the principal
the agent could be precluded under the terms of the power of attorney document from creating joint tenancy accounts between the principal, the agent himself or herself, and/or the principal and any third party.
consider appointing or at least delegating to (on a contractual outsourced basis), reputable, corporate health professionals such as care managers who often will act as power of attorney for healthcare in some situations, and some will also act as agent under power of attorney for property and financial matters. Inquire as to whether they are bonded and insured. This is good option where there may be NO friends or family who are trustworthy, sufficiently experienced, able or willing to act.

These are just examples of some of the precautions that can be taken so that a good power of attorney is put in place and steps are taken to make sure that any possible abuse by a rogue agent is minimized.

What’s the takeaway?

You could wait until later when you need them, however if you develop diminished capacity and lose the cognitive ability to execute documents legally and ethically, then you may never be able to have these types of documents in place and the only alternative may be for someone to pursue, on your behalf, an expensive and complicated guardianship proceeding in court.

Make sure your powers of attorney are in place now.

Anthony B. Ferraro

BS – MS Tax – CPA – JD

An Elder Law, Estate & Trust and Asset Protection Lawyer

The Laws of Aging for Seniors and Boomers

Partner

DiMonte & Lizak, LLC

216 Higgins Road

Park Ridge, IL 60068

847- 698-9600

info@abferrarolaw.com

Websites:

www.abferrarolaw.com

www.dimontelaw.com

Alzheimer's Care, Chicago Elder law attorney, Chicago Suburban Elder Law Attorney, Estate Planning, Estate Planning Attorney, Medicaid and Paying for Nursing Home Care, Nursing Home Admissions, Nursing Home Contracts, senior estate planning

The First Step in CRISIS planning for Long Term Care: Selecting a facility

By admin on

January 8, 2020

- Alzheimer's Care, Chicago Elder law attorney, Chicago Suburban Elder Law Attorney, Estate Planning, Estate Planning Attorney, Medicaid and Paying for Nursing Home Care, Nursing Home Admissions, Nursing Home Contracts, senior estate planning

Selecting a long-term care facility Chicago, the Chicago Metropolitan area, or the state of Illinois for that matter can be complicated. In Crisis Planning for Long-Term Care, this complexity exists whether you are considering independent living, assisted living, supportive living, memory care, or a skilled nursing care facility or a continuing care retirement community. Shopping for any service, but especially long term care services for your loved one, requires careful shopping and a careful examination of the contract that you will be required to sign upon entering the facility.

Sometimes the contracts that facilities offer our clients are not drafted in a way that is most favorable to our clients. Rather the contract in many respects may favor the facility. As in the review of any contract for services, a thorough review is necessary. Here are some of the recurring issues that we want our clients to know about when we review these contracts on their behalf.

First, we recommend that every contract that the client signs be reviewed by our staff first, after all the contract is a binding legal commitment. Poorly drafted contracts are what lawsuits are made of.

Secondly, we recommend that only the person receiving long-term care signs the contract if at all possible. In the state of Illinois we do not have what is called a filial responsibility. This means that children do not have a legal obligation as a matter of law to support their parents while their parents are in long-term care. However children can make themselves contractually obligated by signing on as a as guarantor, responsible party, co-payer etc., simply by signing a contract that has such a liability shifting provision in it.

Third, retain a care placement firm that specializes in matching the medical needs of your loved one with the capability of the facility you’re seeking to enter. Not all facilities do everything the same. Furthermore if you find a facility that matches the medical needs of your loved one (and those medical needs can vary from person to person) then have the care placement firm that you hire review how the facility has performed in its recent state audits regarding delivery of care and safety.

Some of the other issues that we deal with when reviewing these contracts are:

bed deposit requirements – CMS as indicated under certain circumstances, these are permissible.
waiver of certain due process and notice requirements – these waivers should always be rejected.
waiver of any personal liability on the part of the facility for causing any physical or other harm to the resident – these waivers should always be rejected as well.
understanding the interwoven payment requirements when Medicare, private pay, and Medicaid are all part of the payment mix.
nondiscrimination provisions should always be present in any contract.
procedures regarding involuntary discharge should also be examined closely so that there is no frivolous discharge of the resident that deprives the resident of their contractual rights and rights under federal and state law.
there are only certain circumstances, the most obvious one being nonpayment, upon which a nursing home can discharge a resident.
guarantee of payment requirements on third parties- these are impermissible as a matter of law.
paying for “bedhold”, which often occurs when a nursing home resident is hospitalized with the intent to return back to the facility- be aware that Medicaid recipients have priority for the first bed available upon return n from hospitalization thus eliminating the need for a deposit in many cases.
be aware that some facilities that identify themselves as Medicaid facilities, may only be Medicaid facilities in what is called “distinct part”. Thus, only a certain portion of their available beds are certified for Medicaid and Medicare, but not all of their beds.
arbitration clauses- do not believe that you must sign an arbitration clause to gain admission to the facility. An arbitration clause will force a family to litigate any controversial issues regarding payment or harm to the resident in a private arbitration forum, rather than in a court of law with a judge and jury of your peers.

There are many more issues to be concerned about. That’s why the contract must be reviewed by counsel. We tell our clients when we find a contract with problematic provisions, that they have three choices:

accept the contract “as is” – not recommended.
negotiate the contract – if the facility will agree to do so. (Note: we find the many facilities refuse to negotiate and refuse to allow the prospective residents attorney counsel to talk to the facility’s attorneys about the contract – unfortunate but it happens all the time).
Or, if the facility is unwilling to negotiate the contract and the provisions contained in the contract are sufficiently objectionable, the family always has the ability to shop for another facility – this is called “freedom of contract” and exists for your freedom and protection in every area of law.

Two quick news items:

1. Effective January 1, 2020 Illinois has adopted the Illinois Trust Code, which is a substantial overhaul of the laws relating to the drafting and administration of trusts, revocable and irrevocable, in the state of Illinois

2. At the federal level Congress passed the SECURE Act, which is one of the largest overhauls pertaining to retirement accounts and retirement account planning in recent years.

More to come about these two large legislative developments in future issues of our Elder Law Update.

Please accept our best wishes for you and your loved ones for the new year!

Anthony B. Ferraro

BS, MSTax, CPA, JD

An Elder Law, Estate & Trust and Asset Protection Lawyer

A Lawyer for Aging Boomers and Seniors

Partner

Di Monte & Lizak, LLC

216 Higgins Road

Park Ridge, Illinois 60068

phone 847-698-9600

fax 847-698-9624

email: Anthony Ferraro – aferraro@dimontelaw.com

www.abferrarolaw.com

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Correcting Your Estate Plan on the Eldercare Journey

By admin on

May 24, 2019

- Alzheimer's Care, Asset Protection, Blog, Chicago, Chicago area, Chicago Elder Law, Chicago Elder law attorney, Chicago Illinois Hospice Care, Chicago Suburban Elder Law Attormey, Chicago Suburban Elder Law Attorney, Chicago Suburbs, Chicagoland Elder Law, Elder Law Articles, Eldercare Attorney, Estate Planning, Estate Planning Attorney, Guardianships, Medicaid and Paying for Nursing Home Care, Medicaid spend down planning, Nursing Home Admissions, Nursing Home Contracts, Probate, Estate, and Trust Administration, senior estate planning

Why is it necessary to correct your estate plan on the eldercare journey?

Because most people’s estate plans plan for death. Most attorneys will draft these plans well and accomplish the goals of asset transferring upon death. However when you’re on the eldercare journey, and death is not imminent but you face long-term care and the costs of $5,000 to $15,000 a month (in a facility located in Chicago and the surrounding Chicago suburbs and Chicago metropolitan area in general), estate planning documents that serve you well at death may not serve you so well when the healthy spouse may unexpectedly may die before an ill spouse who is residing in an Illinois nursing facility.

So the question remains how do we correct your estate planning documents when you begin the eldercare journey?

First we make sure that upon death assets do not go directly from the predeceasing spouse to the surviving spouse. Rather, upon death, assets are transferred from the predeceasing spouse to supplemental needs trust (SNT) for the benefit of the surviving spouse. Please note that the supplemental needs trusts for spouses must be found in the will of the predeceasing spouse. So instead of doing pour- over wills where assets controlled by the will pour -over to the trust, we do the reverse: assets controlled in the trust pour – back to the will, where the supplemental needs trust are found for the benefit of the surviving spouse.

Why is it advisable to do this as couples age?

Because if at the time of the death of the predeceasing spouse, the surviving spouse finds themselves either in a long-term care facility or soon to enter a long-term care facility, we are not enriching the surviving spouse directly and causing more potential costly spenddown. Rather, we are leaving assets in a supplemental needs trust for the surviving spouse so the surviving spouse can apply for governmental benefits to cover the devastating cost of long-term care ( $5000 to $15,000 per month in Chicago and the Chicagoland metropolitan area and in other parts of Illinois as well), while at the same time having the benefit of the assets and the inheritance left by the predeceasing spouse to be found in supplemental needs trusts left for their benefit.

Don’t fall into two traps of erroneous thinking!

First, don’t fall into the trap of thinking that if one spouse becomes ill, the couple can leave assets directly to the children. This is a formula for disaster because it may create immediate ineligibility for any governmental benefits related to long-term care under the Medicaid rules. Medicaid will not permit you to do this.

Second, don’t fall into the trap of thinking that if one spouse becomes ill, we must completely disinherit that spouse or watch a complete spend-down without any assets being left for the surviving spouse. That is not true either. The reason is spouses are allowed to leave assets for each other in supplemental needs trusts (SNTs) as described above. Thus, there is no need to completely disinherit your loved one, you can leave them assets (in an SNT) that will improve the quality of their life if they need institutional care but at the same time allow them to remain eligible and qualify financially for governmental benefits because the assets that you left for them are not left directly in their ownership, but rather in a special needs trusts that I described above, which is perfectly permissible under the Medicaid rules.

Sounds complicated?

It is not complicated. It’s just different than what you have most likely done with your “traditional” estate planning in the past. As we start approaching our senior years at around age 60-65, in addition to looking into Social Security and Medicare and other related topics for seniors, couples that are concerned about the devastating cost of long-term care you should consider correcting their estate documents so that assets are not left directly from one spouse to the other, but rather, transferred to supplemental needs trusts as described above. This type of planning can save assets by properly relying on rules left for the benefit of aging spouses by Congress in its legislation of the current Medicaid laws that have provisions intended specifically to help avoid this type of spousal impoverishment.

Conclusion

Take advantage of these generous Medicaid provisions and correct your estate plan documents as you begin the eldercare journey around age 60 to 65. Note: If there is a diagnosis of illness prior to age 60 sometimes it is prudent to do this type of planning even earlier.

And once again, this is not the kind of drafting that one will try on their own, rather you need to seek elder law counsel to draft these documents because these documents will be closely scrutinized by governmental agencies.

Best to you and your loved ones,

Anthony B. Ferraro

PS: in the month of May 2019 we have presented at least six times to various audiences on the issues pertaining to Elder law and Elder care. Please contact our offices if you would like to become aware of future speaking engagements that you may wish to attend.

Also please be aware that it is our practice that before clients retain us that we offer them a free 15 minute telephone consultation before they even have to come into our office. If this will help you or one of your loved ones please feel free to take advantage of it by calling our offices.

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Asset Inventories: More than Meets the Eye

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May 6, 2019

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In most people’s experience the creation of an asset inventory is nothing more than creating a list of assets, account numbers and account balances as of a beginning date.

It is a good practice to maintain an asset inventory for yourself and update it periodically.

Some Issues that can Complicate Your Asset Inventory

When someone is ill, and we are looking to establish eligibility for Medicaid for long-term care in either a supportive living facility or a skilled nursing facility, asset inventory issues become complicated in some cases.

In ALL cases:

1. In cases involving individuals who are applying for Medicaid, their asset level must be down to $2,000 of assets as described above. Quite often the easiest way to get to those lower asset limits is to liquidate assets and convert to cash. However, in doing so, various issues arise that we will describe below.

2. First, please recall that any liquidation of any tax qualified retirement account such as a tax qualified annuity, 401(k), IRA etc. will trigger tax, except for a few exceptions.

3. In the payment of debts prior to the filing of the Medicaid application care, must be given regarding the order in which debts are paid. Sometimes certain creditors have priorities over other creditors.

4. In the liquidation of assets, sometimes there are penalties associated with liquidation , depending on the time that you liquidate. For example, annuities can have early withdrawal penalties and surrender charges.

5. Payment of outstanding debt such as credit card debt, mortgages and HELOC (home-equity) loans, may become an important part of your overall strategic spend-down plan when you’re seeking governmental benefits.

6. Long Term Care Insurance: This can and should be considered an asset and income source for certain governmental benefits, but make sure when and where the policy terms will make payment available.

7. Prior transfers or gifts and other uncompensated transfers of cash or property that were made before the date of filing a Medicaid application, to individuals or charities, in the past 5 years can be a liability when you look for Medicaid eligibility for long-term care.

8. Homes unless occupied by certain allowable individuals such as adult disabled children, spouses, or minor children, may need to be listed for sale when an individual seeks Medicaid eligibility. Business assets may also need to be listed for sale.

In SPOUSAL cases :

1. As stated above, any liquidation of any tax qualified retirement accounts such as a tax qualified annuity, 401(k), IRA etc. will trigger tax except for a few exceptions. In a spousal case, if we are going to apply for Medicaid for an ill spouse, then the ill spouse may have to liquidate or change the form of ownership of certain tax qualified assets such as IRAs and 401k.

Note: In order to accomplish this, it is sometimes necessary to open a limited guardianship proceeding in court. However, with IRA’s and other tax qualified retirement accounts we do not want to trigger the payment of taxes sooner than is necessary since the ill spouse may still be residing either at home or in a facility that does not take Medicaid or where no Medicaid eligibility is possible. Thus, why pay tax to the IRS earlier than you need to? Eventually however you may begin the process of transferring the IRA from the ill spouse to the healthy spouse with the assistance of the guardianship court and suffer the triggering of the tax (for example say, 20%) in order to save the bulk of the IRA account for the healthy spouse who is likely still living in the community.

Remember also that because many IRAs are structured as an “IRA annuity” by your financial adviser, there may be penalties and surrender charges on the transferring of such IRA annuity or the cashing out of such an IRA annuity

2. Illinois Medicaid regulations provide that if the community spouse can remain living in the family home, then the community spouse is entitled to retain $109,560 of the couple’s nonexempt assets in addition to the family home, an automobile, personal and household effects, and Medicaid compliant prepaid burial arrangements. Because of these asset limitations, which can be exceeded with careful planning that is authorized under the Medicaid regulations, it is crucial that you be thoughtful in transferring assets from one spouse to the other and be careful about the timing of such transfers.

Conclusion:

As we indicated at the outset, the task of preparing an asset inventory should not in and of itself be that complicated. The difficulties come in when one seeks to re-position or transfer certain assets that are found in your inventory. Many assets have contractual constraints, deferred tax implications built into them, or problems with access before the assets can be freely used for the benefit of you and your loved one.

Be complete and seek guidance if you must to deal with any complicated assets in your asset inventory while you are on the eldercare or long- term care journey.

Alzheimer's Care, Asset Protection, Chicago area, Chicago Elder Law, Chicago Elder law attorney, Chicago Illinois Hospice Care, Chicago Suburban Elder Law Attormey, Chicago Suburban Elder Law Attorney, Chicago Suburbs, Chicagoland Elder Law, Elder Law Articles, Eldercare Attorney, Estate Planning, Estate Planning Attorney, Guardianships, Medicaid and Paying for Nursing Home Care, Nursing Home Admissions, Nursing Home Contracts, Probate, Estate, and Trust Administration, senior estate planning

Diminished Mental Capacity: How it Affects Your Patient, Resident, Client or Loved One on the Elder Care Journey

By admin on

May 1, 2019

However with diminished mental capacity, sometimes it is difficult and sometimes impossible to have such documents executed by a patient, resident, loved one or client due to the fact that they no longer possess the required cognitive capability to legally and ethically sign documents.

This is an impediment, even if we know that the documents would be good for them to have. But because cognitive capacity may not exist, the documents cannot be signed, legally or ethically, even if the individual is capable of going through the physical motion of signing their name. This is because even though they may be able to sign their name, they may not understand what it is that they are signing.

Sometimes circumstances are very clear-cut as to whether mental capacity exists, but sometimes the facts surrounding the behavior of a loved one are not so clear or not so well understood.

What can be done then?

In situations where it is not clear as to whether or not your loved one has mental capacity, the attorney involved may need to seek consultation from a medical professional or mental health expert.

If a formal assessment is desired, the attorney usually attempts to obtain the consent and cooperation of the client, if that is possible. Sometimes this can be upsetting or embarrassing to a client. Nevertheless, the determination of mental capacity is something that must be established before other matters that are encountered on the Elder Care Journey are confronted.

Assuming that either the consent of the client is obtained, or perhaps the client cannot consent, then who does the lawyer look to as a referral for consultation on matters of diminished mental capacity?

If the patient, resident, loved one or client is fortunate enough to have a physician regularly attending to them, then reaching out to that physician may be the first order of business. Sometimes however, primary care physicians may decline as they may feel that they are not trained sufficiently to administer psychiatric and psychological assessment tests.

If the attending physician will not undertake the assessment, you may look to other geriatric assessment professionals that can often take a multidisciplinary approach to determining mental capacity.

Keep in mind that the determination of mental capacity is sometimes complicated by the fact that mental capacity can vary from day to day and can often be task specific. This means that an individual can have the capacity for one type of task, for example, the execution of a power of attorney for healthcare, but may not have sufficient capacity for the execution of a power of attorney for property that has gifting and asset repositioning authorizations written into the document.

Why the difference?

The reason is: The former task (executing a power of attorney for healthcare) has a lower cognitive capacity standard or threshold that must be met in order to establish capacity. The latter task (executing a power of attorney for property) has a higher cognitive capacity standard that must be met, which standard is, for example, closer to the standard that must be met to knowingly execute a contract.

The Takeaway: Obtain and sign powers of attorney for healthcare and powers of attorney for property, as well as any other estate planning documents that you need for either senior estate planning or traditional estate planning, as soon as possible. Waiting till one reaches the later stages in life creates the risk that in those later stages, you may not have the requisite mental capacity to execute the documents that you need.

The problem that arises: If you do not have the requisite mental capacity to legally and ethically execute documents, it may be necessary to engage in a protective action such as a expensive guardianship proceeding in the State of Illinois. Let’s assume the senior resides in the City of Chicago, at this time, in the Circuit Court of the County, the waiting period for a hearing on a guardianship petition can take as long as 4 to 6 weeks due to tremendous case backlog in Cook County. This creates unnecessary expense and time delay that can be avoided with the timely execution of estate planning documents such as powers of attorney for property and powers of attorney for healthcare.

In our office we recommend people execute powers of attorney when they are 18 years of age! Obviously the type of power of attorney that an 18-year-old may need will be quite different than that of a 88-year-old, but the point is you need to get these documents in place sooner rather than later.

Don’t fall into the trap of helplessness that diminished mental capacity can create, and possibly be permanently locked out of your constitutional right to self determination, regarding your own health needs, property matters, estate plan, and other related matters.

Alzheimer's Care, Asset Protection, Chicago area, Chicago Elder Law, Chicago Elder law attorney, Chicago Illinois Hospice Care, Chicago Suburban Elder Law Attormey, Chicago Suburban Elder Law Attorney, Chicago Suburbs, Chicagoland Elder Law, Elder Law Articles, Eldercare Attorney, Estate Planning, Estate Planning Attorney, Guardianships, Medicaid and Paying for Nursing Home Care, Nursing Home Admissions, Nursing Home Contracts, Probate, Estate, and Trust Administration, senior estate planning

Navigating the Long-Term Care Journey with Parents and Seniors

By admin on

April 29, 2019

Do you have powers of attorney in place?

I know it sounds simplistic, and we have all heard this before, but perhaps the most important document that you can have upon beginning the long term care journey is the power of attorney. This is the first matter we suggest to our clients in the Chicago and Park Ridge metropolitan areas who are on the long term care journey.

Why is the power of attorney so important?

Because a power of attorney is a legal document where one person called the “principal” legally authorizes another person called the “agent” to act on their behalf with regard to either financial or health related decisions.

Without these powers of attorney in place, no one has the legal authority to act on another’s behalf and therefore we may have to resort to a court guardianship proceeding where a person appointed by the court, usually a family member, called the “guardian” has the power to make personal decisions for another usually called the “ward”. Guardianship’s are expensive, require the testimony of physicians, the appointment of a Guardian “ad litem” to investigate and protect the ward’s interest, and many other formalities have to be observed, all in the interests of protecting the ward.

These court efforts are all well and good, but if you can avoid all of this by simply having created valid powers of attorney for property and finance and healthcare matters (this may not be possible in all cases), you can streamline matters during your long-term care journey, later on.

How many different types of powers of attorney are there?

In Illinois we have two types of powers of attorney one for health and one for property (and financial matters). Sometimes these documents are called statutory powers of attorney and at other times these documents are called durable powers of attorney. The difference lies in the type of form selected to draft the power of attorney. Most of the time we recommend you stick to the statutory form power of attorney because this is the one the doctors, other health providers, nursing homes, assisted living facilities banks and financial institutions most readily recognize.

Can I create my own powers of attorney?

Yes you can, however they will not contain the necessary language that Elder Law Attorneys put into such documents such as: the power to make gifts to family members and others in order to qualify for Medicaid eligibility, the power to remove and add assets to a trust, and the power to apply for public benefits and then appeal any decision on public benefits. Unfortunately your standard power of attorney forms do not have these provisions built into them. Worse yet, if these additional powers are not built into the power of attorney, then you cannot engage in these powers under the power of attorney. They must be expressly listed in the power of attorney.

What’s the take away?

Get powers of attorney in place immediately. You could wait until later when you I need them, however if you lose the cognitive capacity to legally and ethically execute documents like these, then you may never be able to have these types of documents and hence we are left pursuing an expensive and complicated guardianship process.

Get your powers of attorney in place now.

How old should you be when you start executing powers of attorney?

18 years of age. Most people don’t realize that at 18 they cannot make either financial or medical decisions for their children. But that is in fact the law, because at 18 children have reached the age of majority and without legal authorization nobody can make decisions for them as they are now adults.

Ask your adult children to have their powers of attorney done now, as well.

Creating a Blueprint – For Asset Protection from Long Term Care

By Anthony Ferraro on

October 12, 2015

- Alzheimer's Care, Asset Protection, Blog, Chicago, Chicago area, Chicago Elder Law, Chicago Elder law attorney, Chicago Illinois Hospice Care, Chicago Suburban Elder Law Attormey, Chicago Suburban Elder Law Attorney, Chicago Suburbs, Chicagoland Elder Law, Elder Law Articles, Eldercare Attorney, Estate Planning, Estate Planning Attorney, Guardianships, Medicaid and Paying for Nursing Home Care, Medicaid spend down planning, Nursing Home Admissions, Nursing Home Contracts, senior estate planning, Uncategorized

Installment 5 of 10

In Our Series:

“Long Term Care Costs for the Middle Class: 10 Steps to Asset Protection through Medicaid in Illinois, for Middle Class Seniors and Boomers”

Why create a Blueprint (Medicaid asset protection letter) for your asset protection planning? Just like in building a home, you don’t hire a contractor to start slapping bricks together until you have decided on the number of rooms, type of rooms, location of the rooms, etc. Likewise, many are quick to suggest creating a will, trust, powers of attorney, perhaps an irrevocable trust, or an annuity, etc. This can be very costly and foolish. How can you create a plan consisting of various documents that are supposed to protect you without a design in mind? Mindlessly putting together layers of documents accomplishes nothing except large bills. Before our clients create any legal documents we suggest to them that they do a blueprint, which is in effect a Medicaid asset protection letter. In that letter we outline the following:

Planning strategies that can be done in preplanning mode, or crisis mode, depending on where you are in the long term care journey.
Planning strategies available for single individuals, or the community spouse when an ill spouse is going into a nursing home.
An outline of the current status of the law as it relates to Medicaid eligibility.
Finally, planning recommendations that are broken down into things that you must do immediately and things that you may be able to defer until later.

Below are some examples of our final recommendations in our Blueprint: Immediate Action

Creation of powers of attorney for healthcare and powers of attorney for property. However, our powers of attorney have many more powers and are more substantial than the average power of attorney that most people have.
Creating wills and trusts that have special needs trusts built into them for a surviving spouse or a minor or adult disabled child. This takes advantage of certain relief that Congress intentionally placed into the Medicaid laws.

Deferred Actions

The purchase of a Medicaid compliant annuity or a Medicaid compliant promissory note.
Our office files a Medicaid application.

Conclusion As you can see from the above, there are strategies that we rely on that result in the savings of a lot of assets for middle class seniors and boomers who are going into long-term care. However, because these measures are complicated, it makes sense to have a blueprint laid out describing them in detail using your asset and income numbers before actually engaging in these actions. We want our clients to go into strategies and solutions with eyes wide open. The only way that can be accomplished in most cases is to create blueprint that lays out all of the Medicaid asset protection planning strategies in the form of a letter that the client can study, and ask questions about. We usually resolve all of the questions the client may have at our subsequent “Design Meeting.” Make sure you look before you leap.