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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. 



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


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.
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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Do you have the right kind of trust?

Many of our clients come into our office with trusts. Most of the time these trusts are what are called revocable living trusts (RLTs). These types of trusts offer no asset protection even though seniors are often ready to conclude that they have protected their assets with such a trust.

Only certain types of irrevocable living trusts (IRTs) provide asset protection for long-term care. Irrevocable trusts, if drafted properly, may be considered a complete gift by the senior to the beneficiaries of the IRT, and thus out of the senior’s estate permanently. If, however, the senior has any access to principal in the IRT, then the IRT will not provide any asset protection from the costs of long-term care.

It is possible to allow seniors to maintain an income interest in the IRT, as opposed to an interest in the principal of the IRT, but this creates a more complicated audit process if and when the senior ever needs to look to the Medicaid program to pay for the costs of long-term care.

About 66% of all US citizens will be looking to the Medicaid program if long-term care is needed. Therefore, it is increasingly important to properly draft an IRT and also understand the time of the creation and funding of the IRT so that the creation of the trust will not interfere with a possible application for Medicaid to cover the costs of long-term care.

Seniors also have to keep in mind that there are significant issues in the drafting of an asset protection trust that deal with the following:
  • Income tax issues
  • Gift tax issues
  • Estate tax issues
  • Medicaid eligibility issues
  • Issues about the right beneficiaries, receiving the right assets, at the right time
  • Trustee issues
  • Using the IRT in a period of health for the senior versus a health crisis for the senior
  • Issues regarding selecting the right assets to place in the IRT

So you see, asset protection trusts are essential for many seniors, because they may be the only way assets can be protected, not only from the cost of long-term care but also the predators and creditors of their beneficiaries. But the drafting of an IRT is much more complex than the drafting of an RLT and seniors need to make sure that they retain an elder law attorney to maximize the chances that their trust is the right trust for them at that point in their life.

Installment 8 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”

Picking a strategy is not something one can easily do on their own. Selecting strategies in order to minimize the cost of long-term care requires an understanding of both the requirements of sophisticated estate planning and access to governmental benefits. However in order to provide an overview of how strategies are selected, you must understand that strategies will vary depending on whether or not the senior is in one of the following phases:
  1. Preplanning Mode
  2. Wait-and-See Mode
  3. Crisis Mode
Preplanning can be done when there is no threat of a long-term care stay that is imminent.  Wait-and-see mode exists when there is a diagnosis but the senior will not be leaving home in the near term, and crisis mode is when the senior is in a nursing home or soon to be in a nursing home. In preplanning, because time is on our side, we can engage in such strategies as looking for long-term care insurance to cover all, or part of, the cost of long-term care. Perhaps a long-term irrevocable trust that will put assets outside of the estate may be useful. Sometimes purchasing certain types of assets that are exempt non-countable is advisable. In wait-and-see mode, because there is often a diagnosis, good powers of attorney for health and property and the preparation of wills and trusts that bypass the ill senior are essential. Also, changing the beneficiary designations on various assets so that they do not pass automatically on the death of the healthy spouse to the ill spouse is another consideration. It may be even possible, at this point, for the healthy spouse to obtain long-term care insurance. In a crisis mode, it is essential that the ill senior be made eligible for Medicaid in order to cut the costs of long-term care. The only way a senior can be eligible is to be an asset level of no more than $2000, exempting non-countable assets like prepaid burial arrangements, personal effects, very small life insurance policies, and limited other resources. All other assets must be converted to a non-countable status. This is not always possible, so quite often it is necessary in crisis mode to transfer assets from the senior. You must understand that this will result in a period of ineligibility for the senior. However, with the assistance of competent elder law counsel who specializes in Medicaid asset protection planning, it is possible to transfer assets while at the same time retaining enough assets in a form that will allow the penalty period to be paid down and the transferred assets to be protected. Selecting a strategy for asset protection planning in long-term care is not an easy matter, but with the proper planning our office does it all the time. It is essential that Medicaid rules be followed strictly. This sounds like a heavy task, and it is, but the alternative of not selecting a strategy to protect assets from long-term care costs results in the impoverishment of seniors at a time in their life when they should not be destitute for such simple quality of life items, like hearing aids, eyeglasses, podiatry care, medications and certain therapies not covered by Medicaid. Plan ahead, it’s your quality of life that is at stake in your senior years.

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:
  1. Planning strategies that can be done in preplanning mode, or crisis mode, depending on where you are in the long term care journey.
  2. Planning strategies available for single individuals, or the community spouse when an ill spouse is going into a nursing home.
  3. An outline of the current status of the law as it relates to Medicaid eligibility.
  4. 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.

Installment 4 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”

In this part of our ongoing series of how to deal with the looming crisis associated with long-term care costs for the middle class, I would like to talk about when it may be necessary to revise wills and trusts.  Also, what should newly restated revised wills and trusts look like? First of all, we should remember that during our maturing years, most people, especially those with children, will prepare wills and trusts that deal with what happens to their assets upon death. This is a very understandable and laudable goal, especially for those people that are afraid of leaving small children behind. However, as we go beyond our maturing years and start focusing on our senior years, the focus is no longer “what happens when we die,” the focus now changes to “what happens if I don’t die and I need long-term care for a long period of time.” When that becomes the concern of someone going into their senior years, wills and trusts must be modified in few different ways.
  1. For single persons, there needs to be the ability to withdraw assets from a revocable living trust, or various types of asset management accounts, like pay on death accounts at a bank, transfer on death accounts at a brokerage firm, and IRA accounts. The reason for this additional withdrawal power is so assets can be withdrawn from these repositories and used elsewhere in accordance with planning techniques designed to preserve assets so that eligibility for Medicaid long-term care benefits, such as nursing home cost coverage, can be achieved. This would be a satisfactory result.
  1. In the case of married individuals, it becomes very important to be able to not only withdraw assets from various places, but also redirect assets in the event of the death of one spouse. Specifically, if we have two spouses, but one is in a nursing home, and the other spouse, who is otherwise healthy, should die unexpectedly, the assets of the deceased spouse will be transferred to the surviving spouse and those assets could be subject to a complete Medicaid required spend down for nursing home costs. This unfortunate circumstance can be avoided if the couple restates their wills and trusts. Rather than transfer assets to the surviving spouse directly, assets can be transferred to certain special needs trusts that are created for the surviving spouse who is residing in a nursing home. This type of special transfer will allow the surviving spouse to continue to receive benefits from Medicaid for their long-term care, and at the same time enjoy the inheritance left behind by the predeceasing spouse. This would also be a satisfactory result.
These types of more favorable results don’t happen automatically. They require very careful drafting by elder law attorneys who have familiarity with the Medicaid statutes and regulations. Careful drafting can allow people who need Medicaid for long-term care to, some extent, retain assets that can act as their lifetime “rainy day fund.” Again, this is planning that is done not for wealthy people, but rather  is done for middle-class individuals who have few remaining assets and would like to preserve them to elevate the quality of their life should they be in long-term or nursing home care for an extended period of time. Remember Medicaid does not cover the cost of the television, hearing aids, eyeglasses, certain podiatry care and other essentials that add to a senior’s quality of life. That is why the planning for the creation of a “rainy day fund” for this type of circumstance is so crucial. Caution: This type of planning must be done while you are able to do it. It cannot be done once you have diminished mental capacity to the extent of not being able to make financial decisions for yourself all. Start your planning now!

Problem: We recommend that our clients seek to purchase long term care insurance. But, what happens if it cannot be purchased either due to unaffordable costs or underwriting prohibitions? Solution: Medicaid is the only federal governmental program that will pay for long-term care. This will require using some of your own funds in order to properly pay your way at a long term care facility, but if planned for properly, will not result in the use of all of your funds. Therefore, in order to access the Medicaid program in Illinois, one must take some of the following steps in order to become eligible. Be aware, this is a very complex area of planning, but these initial steps should be an overview of what you need to do to begin the process. You would be wise to consult with an Illinois elder law attorney who focuses in this type of asset protection work.
  1. Revise Powers of Attorney
First, revise any powers of attorney for property and health care that you currently have. Most of the powers of attorney that we see in our office, while valid, are inadequate to allow the necessary repositioning and reclassification of assets to gain eligibility to Medicaid, VA, and other governmental benefits.
  1. Contact a Physician
If the senior has mental competency issues, then perhaps contacting a physician to determine whether or not the senior has the requisite mental capacity to execute new estate planning documents is essential. It is unethical to have a senior sign anything that they don’t have the capability of understanding.
  1. Seek Guardianship
This step is a last resort, but may be necessary in some cases, if no powers of attorney can be executed due to diminished mental capacity.
  1. Revise Old Wills and Trusts
Revising old wills and trusts is also essential. Most wills and trusts are nothing but death plans. But, when you’re looking to gain eligibility for Medicaid for long-term care, the documents must reflect the authorization of handling long-term care planning matters rather than just distribution of assets and a death.
  1. Create a Blueprint
The next step, which is useful to seniors, and the family members that are supporting them, (and boomers that are beginning to ponder the long-term care journey), is to create a blueprint.  This blueprint will consist of breaking down considerations into life’s 3 main phases: preplanning, wait-and-see planning, and crisis planning. Preplanning is done when there is plenty of time to plan, waitand-see planning is done when there is a diagnosis, but you are not forced to leave home for long-term care, and crisis planning is when you must seek a higher level of care in an institutional facility of some type. Quite often, after the blueprint is done and steps one through four are completed, there is nothing further to do until the situation becomes more escalated and a higher level of care may be needed by the senior or boomer, who may migrate to a crisis planning stage.
  1. Inventory Assets
Assuming that we need a higher level of care, we need to continue the work that we did in steps one through five and take the next step, which is set up work necessary to inventory assets and get an understanding of asset ownership, beneficiary designations, and ability to convert to cash in order to pay for long-term care expenses, at least for some period of time.
  1. Seek Placement in a Facility
The next step, assuming that a higher level of care is to be delivered, is to seek placement in a facility. There are many kinds of facilities, such as, independent living facilities, assisted living facilities, supportive living facilities, and nursing homes, and continuing care retirement communities (CCRC’s). I am pleased to say that, for the most part, we see these business entities delivering good care to most of our seniors. Like any other business entity some of their business contracts are fair and others are unscrupulous. It is necessary for you to have a lawyer familiar with these types of contracts to be sure that, from a legal standpoint, whatever you are signing is acceptable. Remember, some of these contracts can require you to pay $10,000 a month and may unnecessarily impose financial liability on children and other signers of these contracts.
  1. Select a Strategy
The next task is to select a strategy which will allow the senior or boomer to legally and ethically reposition his or her asset(s).  This opens up eligibility for the Medicaid benefit in Illinois without spending down to the paltry statutory level of $2,000 of assets. Remember without further planning, Illinois expects you to rely on $2,000 for the rest of your life. This is impossible because some of our seniors enter long-term care at the age of 67 and may remain in long-term care for the next 20 years. It would be nice to have more than a mere $2,000 to buy the TVs, radios, bathrobes and slippers, hearing aids, and eyeglasses that make life more tolerable.
  1. Prepare and File the Medicaid Application
The next step is to prepare and select a time, after the implementation of all asset protection strategies, to file the actual Medicaid application, which fully documents all transactions over the last 60 months. In some cases this can be very demanding task as some seniors lose documentation and forget about transactions and assets.
  1. Prepare for the Post Application Audit
The next step is to prepare for the post application audit by the State of Illinois staff members and be ready to file an appeal in the event the state objects to anything you have presented in the application. Also be ready on an annual basis to respond to the state’s request in what is called their annual redetermination process (REDE). Summary: I hope this gives you a simplistic view about how to qualify for Illinois Medicaid while using Medicaid asset protection strategies. Most clients are trying to preserve some assets and they are entitled to do so as a matter of exercising their civil rights as long as they do this legally and ethically. This planning is not done by wealthy individuals, as they can pay their way through any costs associated with long-term care. Rather, this planning is best done by middle class individuals who have worked to accumulate some savings only to find that the cost of long-term care make their life’s work disappear in no time. Our goal, as asset protection attorneys for the middle class, is to allow seniors to gain access to the Medicaid program. Although this requires clients to use some of their own assets for their cost of long-term care, it also enables them to preserve some of their assets.  Therefore, in their senior years, after a lifetime of work, they are entitled to some dignity and some resources to make a life in a nursing home more livable. Anthony B. Ferraro BS-MSTax-CPA-JD

  As we have written in the past, for many years estate planning was driven primarily by estate tax minimization. Now with the estate tax exemption at $5.43 million per person, there are very few middle class individuals that need to worry about federal state tax and their estate plan. Does that mean that no estate planning is necessary for the middle class? Absolutely not. Instead, with this freedom from the need to focus on the estate tax planning, there are plenty of opportunities and resources to focus on matters that are far more important than taxes. Listed below are the areas that deserve more attention and have not received enough focus in the past. Middle class taxpayers can start focusing on the following areas:
  1. Creditor Protection:
Creditor protection can focus on the individual client and also the following generation to fulfill the client’s wish to leave a financial legacy. For example, in planning for the next generation, parents work very hard to deliver a financial legacy. But what happens when, upon their death, their children are embroiled in a divorce, a bankruptcy, or a lawsuit with a large damages claims brought against them? Therefore, no matter how hard you have worked to leave wealth for your children, that wealth can evaporate in a moment based on the uncontrollable events that take place in your children’s lives.
  1. Selection of Fiduciaries:
Selecting someone to act in matters pertaining to powers of attorney for property, powers of attorney for health, trustee selection, or executor selection, all bring with them a host of pros and cons. Do you know what the pros and cons are? You should before you start making those important appointments in your documents. Have you spoken to a trust company that may do a better job than family members?
  1. Income Tax Impact is Now Front and Center:
Now that the estate tax is less of an issue for most middle class taxpayers, taxpayers can rightfully start focusing on other matters of importance. For example, on income tax basis step-up (or step-down) issues for purposes of future sales of appreciating property. Also, consider reducing the so-called 3.8% Medicare surtax on investment income such as dividend, interest and capital gains.
  1. Second Marriage Planning:
Proper attention must be given to matters pertaining to second marriages and threading the needle between providing for the new spouse while still leaving a financial legacy for children from the prior marriage. There a lot of good options, some funded by financial products, that can be valuable in situations such as this.
  1. Business Succession Planning:
Trying to equalize inheritances associated with cases where some children are involved in a family business but others are not requires, again, threading the needle in a way in which multiple parties with diverse interests can be made to feel that they were dealt with fairly.
  1. Long-Term Care Planning:
With advances in medical science allowing many of us to live longer and healthier lives, the question becomes how to plan for not only what happens when we die, but, what happens if we don’t die, until living a long life, but with the devastating expense of long term care? While the simple answer is for you to obtain long-term care insurance, it is not the only answer. As a matter of fact, due to increasing premiums and difficult underwriting standards, many people will have to look for other solutions in planning for long-term care. Related to the area of long-term care planning are matters pertaining to special-needs planning, matters of elder abuse, related financial services (especially dealing with Social Security elections), IRA and 401k retirement elections, and Medicaid asset protection planning against long-term care costs. So, for the middle class, estate planning remains alive and well. The focus has changed from estate taxation into other, and in my opinion, more important matters.      

During your stay in a hospital, your doctor and the staff must work with you to help plan for discharge from the hospital.  Your input is an important part of creating a comprehensive plan for what happens after you leave the hospital setting and enter long term care.  The following questions come from a document called “Your Discharge Planning Checklist” from the Centers for Medicare and Medicaid Services.  We recommend using this and other checklists in working with the hospital’s staff before discharge. During your stay in a hospital, your doctor and the staff must work with you to help plan for discharge from the hospital. Your input is an important part of creating a comprehensive plan for what happens to you after you leave the hospital setting and enter long term care. The following questions come from a document called “Your Discharge Planning Checklist” from the Centers for Medicare and Medicaid Services. We recommend using this and other checklists in working with the hospital’s staff before discharge. The following questions are important considerations as you prepare to leave the hospital:
  •  Where will you receive care after discharge?
  •  Who will be helping you in the transition from the hospital to long-term care?
  •  What is the current status of your health? What can you do to improve it?
  •  What potential problems should you be aware of with regards to your health? Is there someone you could call if these problems do arise?
  •  Do you need medical equipment (like a walker)?
In addition, we strongly recommend doing the following in preparation for discharge from the hospital:
  •   Create “My Drug List” to write down any prescription drugs, over the counter drugs, vitamins, and herbal supplements that you need to take, along with the dosage and other pertinent information.
  •  Ask for written discharge instructions and a summary of your current health status. Bring this information, along with your complete “My Drug List” to follow up appointments.
  •  Talk to a social worker or a representative from your health plan to determine what your insurance will cover and how much you will have to pay.
  •  Talk to an elder law attorney if you do not know how your long term care will be covered:
        -Long Term Care Insurance? Not many people have it.
        -Private Pay? This can cost over $8,000 a month!
        -Medicare? Does not cover long term care in a nursing home or assisted living facility.
        -Medicaid? This covers long term care, but you must take planning steps to qualify based on your assets and income.
For your information, Anthony B. Ferraro was elected President of the Illinois Chapter of NAELA, the National Association of Elder Law Attorneys. Congratulations to him.

You know the kinds of wills I’m talking about. The husband leaves everything to the wife, the wife leaves everything to the husband, and after they both die, everything goes to the children. This works well for situations in which the spouses are healthy one day and deceased the next. However, as most of us know, life doesn’t usually happen that way anymore. Some research indicates that 69% of individuals over 65 will require some kind of long-term care in their lifetimes. Thus, many spouses worry that if they predecease a disabled spouse who is currently in a nursing home or will require long-term care at some point in the near future, there will be insufficient funds available to provide for the institutionalized spouses’ needs. This is an especially relevant concern for expenses that are not covered under Medicaid, like a care manager, private nurse, single room, and certain therapies or drugs. Another concern is that the availability of funds from “I love you” wills and trusts will disqualify the surviving ill spouse from eligibility for Medicaid benefits. As you know from prior articles, Medicaid is the only long-term-care governmental program in the United States. Medicare does not cover long-term custodial care. To solve this problem many of our clients rely on a “testamentary trust:” a trust built into the will of each spouse. For many estate planners, this is counterintuitive because much estate planning occurs within the context of a revocable living trust. In order to preserve access to Medicaid eligibility without requiring that the surviving spouse spend down the assets and lose the chance to maintain a “rainy day fund,” creating a testamentary trust in the will of the pre-deceasing spouse is essential. What this means is that around age 55, you have to completely revise your wills and trusts to accommodate a different paradigm of thought. The thinking process is no longer what happens if I die? Rather, the question is what happens if I don’t die and live a long time with expensive long-term care. The new paradigm requires a new estate plan. If you consider yourself middle-class (meaning that your net worth will be significantly impacted by the cost of long-term care for you and/or your spouse) and are over age 55, I suggest that you revise your estate plan to reflect this newer paradigm as soon as possible.