Elder Law Articles, Uncategorized

What Happens if You Don’t Die, but Become Ill for a Long Period?

May 20, 2010

What Happens if You Don’t Die, but Become Ill for a Long Period? Is an Asset Spend Down in the Nursing Home Inevitable? Ask Our Law Firm for Help With This.

Medicaid asset protection planning for long term skilled care can still be done – but you need to start now.  Before the Deficit Reduction Act (DRA) was signed into law on February 8^th, 2006, you and most clients would plan so that assets would avoid probate or taxation at  death.  This may no longer be the biggest issue for you and other clients.  Now, an even larger issue may be not what happens in the event of your death, but rather what happens if you don’t die, but become ill? In that case, it will become much more difficult to protect your assets.  Planning can still be done, but under DRA, you must plan further ahead (at least 5  years). Some problems to avoid are:

1. Gifts and other transfers to family members that cause ineligibility.  Under prior law you could  gift $10,000 to a child or grandchild for college, and this would not be a big problem. The penalty period would probably be gone in two months.  Now, if the same gift is made after February 8, 2006, you create not only a two month penalty period, but the penalty period does not begin until the time you enter a nursing home and have zero remaining assets. Question: how do you pay for a nursing home in such a case with no assets and no Medicaid Application Approval? Be sure to ask our advicebefore you gift or transfer.
2. Becoming ineligible for benefits because the Government’s look back period is now 5  years. The look back period used to be 36 months or 3 years. Now its 5 years or 60 months. This is quite onerous.   Keep good records of everything. The state will look at all payments and transfers for the last 5 years. Without records you may be ineligible for care. Have our office plan and prepare your Medicaid Application.
3. Owning non-compliant Annuities. In some cases the State of Illinois must, by law, be named primary beneficiary in the annuity on the death of the annuitant or the ill spouse. This may upset the existing estate and retirement plans of many people. Have us assist your advisors to get proper annuity contract structures.

We recommend planning at least  5 years ahead of any health failure or lifestyle changes or needs.  Under the old law, you could always do planning if you were in a nursing home crisis situation.  Under the new law, that may no longer be the case. Clients need to have estate documents that are flexible long in advance of health failure.   For example, a client may have Powers of Attorney for Property and wills or trusts, but these documents must be reviewed and updated for the new DRA law. This will ensure that all planning opportunities under the new DRA are going to be available in the event that illness befalls you. For example: What happens if you no longer have the capacity to make the needed changes to your documents? Take the following easy steps now: 1) talk with family members about long-term care planning; 2) update your estate documents; 3) draw up a plan for retirement; 4) look into long-term care insurance; and 5) consult with our office in order to help in any of the above since we are elder law, transaction, and estate-trust lawyers who navigate this field. You should contact me at (847)292-1220 if you have any questions regarding the new DRA.  There are many provisions in the DRA that can be used to your advantage, and some that create great disadvantages if not correctly handled. **This document is for discussion purposes only and is not intended to be construed as legal advice. You should never attempt estate planning without the advice of competent legal counsel. Please feel free to contact our offices if we may assist you.** Any tax advice contained in this communication was not intended to be used, and cannot be used, by you (or any other taxpayer) to avoid penalties under the Internal Revenue Code. Copyright 2006 THE LAW OFFICES OF ANTHONY B. FERRARO, Rosemont, Il.