Protecting Inherited Retirement Plans – Part 3

Now that we have covered how you can protect the assets of your heirs’ inherited IRAs, it’s time to move on to the rules for withdrawing assets from an inherited IRA. Our last article will cover pros and cons of creating a Retirement Plan Trust to be the beneficiary of an IRA.

What Rules Apply?

The rules on how rapidly withdrawals must be taken from an inherited IRA differ depending on who or what the beneficiary is. There are a series of questions that guide that determination.

Question Number One – Can the Account Be Divided into a Separate Account for Each Beneficiary?

If, under the beneficiary designation, before December 31 of the year following that of the participant/owner’s death a separate account can be and is established for each beneficiary, a separate determination will be made for each account. If, however, the separation cannot be made, the distribution rule that applies to the whole account is the one that would be applicable to the least privileged beneficiary.

Question Number Two – Is There a “Designated Beneficiary”?

The least stretch opportunity is afforded to the beneficiary that is or the class of beneficiaries that contains a beneficiary that is other than a “designated beneficiary.”

A “designated beneficiary” is a beneficiary who is:

• named as a beneficiary under the terms of the plan or by an affirmative election by the
• owner/participant; and
• an individual who is alive on the owner/participant’s date of death.

A “designated beneficiary”:

• need not be specified by name, but must be identifiable on the owner/participant’s date of death;
• may be a member of a class of beneficiaries capable of expansion or contraction (e.g., my children or grandchildren) so long as the members of the class may be determined on the owner/participant’s date of death; and
• may be an individual among those named as beneficiaries of a “qualifying trust.”

To be a “qualifying trust,” a trust must meet four simple requirements:

1. It must be valid under state law;
2. It must be irrevocable upon death of owner;
3. All beneficiaries of the trust must be identifiable from the trust instrument; and
4. The Trustee must provide a copy of the trust to the plan or IRA custodian by October 31 of the year following the participant/owner’s death.

Examples of named beneficiaries that cause the “designated beneficiary” question to be answered in thenegative are the owner/participant’s estate, a charity, an entity (e.g., a corporation, partnership, or LLC), and an individual who was not alive at the death of the participant.

The “designated beneficiary” determination has to be made by December 31 of the year following that of the participant/owner’s death. If there is a designated beneficiary then the Life Expectancy Rule applies. If not, then the Five Year Rule applies.

Life Expectancy Rule

If the Life Expectancy Rule applies, the beneficiary’s RMD in the year following the owner/participant’s death will be an amount equal to the account balance on the December 31 following the owner/participant’s death divided by the beneficiary’s actuarial life expectancy, as determined by the IRS Single Life Table, at the time of the owner/participant’s death. The first RMD withdrawal must be taken by the December 31 following the first anniversary of the owner/participant’s death.

In each subsequent year, the beneficiary’s RMD will be the account balance as of the prior December 31 divided by a number that is one less than the previous year’s divisor.

Five Year Rule

If the Five Year Rule applies, every penny of the account must be withdrawn by the December 31 following the 5th anniversary of the owner/participant’s death. Withdrawals can be made at any time in the period so long as the account is emptied by that date.

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Protecting Inherited Retirement Plans – Part 2

Last month, we covered the startling fact that inherited IRAs are not asset protected, and now we will move on to how you can asset protect your heirs’ inherited IRAs.

The Fox Guarding the Hen House

A second major problem in planning for qualified plans and IRAs is the “found money” syndrome.

Those who put the money in IRAs and qualified plans are often loath to take out even the required minimum distributions. Their beneficiaries often do not share that inhibition. Instead, they view their inherited IRA or qualified plan account as found money to be withdrawn and spent. Too often that spending is for the unwise and imprudent satisfaction of material desires and whims.

The symptom of this syndrome that the advisor typically sees is the rapid loss of assets under management. The good news is that the “found money” syndrome can be prevented.

The Retirement Plan Trust

Can you asset protect your beneficiaries’ inherited IRAs and qualified plan accounts and ensure that your beneficiaries receive the maximum stretch out benefit of tax-free compounded growth? The answer is a resounding, “YES!” The Retirement Plan Trust can do just that.

The Retirement Plan Trust is designed to weave carefully through the many pitfalls that exist in the law.

Withdrawals after the Owner’s Death

After the owner/participant’s death, when RMDs must begin and how much they must be is determined by different sets of rules. Those rules can be established in the qualified plan document as long as they are no more lenient than those established by the IRS for IRAs. Historically, many qualified plans did not offer inheritors the option to stretch their withdrawals out over their actuarially determined life spans. Employers, finding no benefit in administering accounts for beneficiaries of deceased employees, often required inherited benefits to be immediately distributed or taken within just a few years. To ensure that beneficiaries of qualified plan participants could take advantage of the maximum stretch opportunities allowed by the tax laws, Congress has now required that, effective January 1, 2010, all qualified plans must offer plan participants’ beneficiaries the option of rolling their inherited accounts over into an IRA or a Roth IRA. Therefore, we will discuss only the rules for distributions from inherited IRAs and inherited Roth IRAs (which are the same).

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Medicaid Really is a Maze

I taught a portion of the Medicaid Maze 2012 this last week. My portion was on legal documents needed for estate planning and elder law planning. Gary Crooms of Senior Information Services taught a wonderful three-hour CE Course on Medicaid, Aid and Attendance for Veterans and other issues related to paying for long-term care. This was my third time to attend and every time I learn something new. I am always impressed by Gary’s knowledge of what is going on in these areas.

These areas really are a maze with trips and traps for the unwary. It takes an expert to help you navigate through the maze and make it out safely on the other side. Aid and Attendance is a benefit that a lot of veterans don’t realize that they qualify for. It requires 90 days in the military and 1 day during a war time period. It also requires a level of medical necessity. There is a maximum level of assets, but assets can be gifted away without a look back period. Gary showed us in the course how sometimes the veteran can afford to spend more on care with the help of Aid & Attendance without increasing the out of pocket amount for the veteran.

Gary also talked to us about the new TIERS (Texas Integrated Eligibility Redesign System) that is supposed to make filing applications more efficient. He talked about many of the traps in this area and how having someone who knows how the system works can help the application get processed in a timely manner. One of the examples he gave was someone from his company called to check on an application and was told by the case worker that they were so understaffed that they only worked on applications when someone called and asked about them.

If you need help with Medicaid, Aid, and Attendance or other long-term care issues, Gary and I can work together to help you.

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Protecting Inherited Retirement Plans – Part 1

Federal law protects qualified retirement plan accounts from creditors and lawsuits. State law protects IRAs. Many wrongly believe that these accounts will remain asset-protected after their owners die. This article first reviews the asset protection of qualified plans and IRAs and the required distribution rules for account owners. Next it discusses the alarming concurrence of courts that inherited IRAs are not asset protected. Finally, it explores how Retirement Plan Trusts can provide that asset protection, along with allowing the retirement accounts to be taken over the beneficiary’s lifetime. These articles will run over a few months’ time.

Asset Protection of Qualified Plans and IRAs

Asset protection for an owner’s qualified retirement plan accounts is provided under federal law, while any that exists for IRAs are provided only under state law. ERISA (the Federal Employee Retirement Income Security Act of 1974) provides protection from creditors for all qualified plan assets while they remain inside the plan. ERISA’s asset protection for qualified plan distributions, however, depends upon whether the plan is a pension plan (complete protection) or a welfare benefit plan (no protection). Under ERISA, a “pension” retirement plan is any “plan, fund or program which…provides retirement income to employees.” Defined benefit pension, profit sharing, and 401(k) plans are all “Pension” plans under that definition. ERISA protections are the same both in bankruptcy court and outside of bankruptcy. ERISA’s protection also extends to an owner’s IRA assets that were rolled over from a qualified plan.

Non-Bankruptcy Protection for IRAs

ERISA does not govern IRAs and Roth IRAs. Any non-bankruptcy protection afforded for them comes under state law, which varies widely from state to state. That protection goes all the way from unlimited protection to protection of a specified amount to protection of a court-determined amount reasonably necessary for the debtor and any dependents. Also some state statutes may not protect Roth IRAs or IRAs converted to Roth IRAs.

Bankruptcy Protection for IRAs

Bankruptcy law only protects up to $1 Million of IRAs that were not created by rollover from a qualified plan. Do not combine an IRA rolled over from a qualified plan with one that was not, because doing so can jeopardize the client’s asset protection in bankruptcy.

Asset Protection of Inherited Retirement Plans Including IRAs

Texas courts have held that inherited IRAs have no asset protection, whether in or out of bankruptcy. Congress did not contemplate asset protection for anyone other than the worker (or the worker’s spouse after a spousal rollover); its goal was to ensure the availability of assets during the owner/participant’s retirement. Given this reasoning, it seems likely that more courts will find that inherited IRAs provide no asset protection.

Next month, I’ll cover different trust plans that can help you protect your inherited retirement.

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About Long-Term Care Insurance

The longer we live, the greater the chance is that we will need some type of long-term care, meaning that we will need to be taken care of due to a physical illness, a disability, or a mental impairment, such as Alzheimer’s, dementia, or aphasia. Such care can be provided by family members, professional caregivers, an adult day care centers, assisted living facilities, nursing homes, or hospice. No one wants to need long-term care, but we should start to at least plan for how long-term care will be paid for, if we do indeed need it.

Long-term care can be incredibly expensive. In Texas, care costs on average $3,000 a month for assisted living and $190 a day for a private room in a nursing home. Your medical insurance policy does not cover long-term care, so you will have to look into other options for paying for long-term care. Medicaid and Medicare both offer the potential for paying your long-term care costs. If you qualify for Medicaid, then most of your expenses will be covered. Medicare will help cover some expenses, but not all expenses you can incur at a nursing home or in a assisted living facility. As a result, many people pay for long-term care out of their pockets until they qualify for Medicaid.

Another option is long-term care insurance, which can help protect any significant assets you have against the high costs of long-term care. If you do not own significant assets and you have to stretch your income to pay for living expenses as it is, then it’s most likely best that you pay for care yourself until you qualify for Medicaid.

Reasons to consider long-term care

The following factors can contribute to whether you will possibly need long-term care in the future:

• Long life expectancy – The longer you live, the more likely you will need long-term care.
• Gender – Women have been consistently shown to live longer than men.
• Family – If you have family who can take care of you, you may not need to look into long-term care.
• Health history – If chronic or debilitating conditions run in your genes, then your risk for needing long-term care greatly increases.

Purchasing long-term care insurance

Before you look into purchasing long-term care insurance, you may want to go over your financial situation with an advisor first. Also, remember that the younger you are, the less expensive an insurance policy will be.

If your financial advisor agrees that an insurance policy is best for your interests, there are four different avenues you can take to purchase a long-term care policy.

• Individual policy – Most long-term care policies are sold to individuals, and these policies can vary in coverage from company to company.
• Group policy – Some employers offer a group long-term insurance policy or discounts on individual policies.
• Government policy – Federal and state government employees and retirees can apply for coverage through the Federal Long Term Care Insurance Program. Please note, however, that this does not mean that the government pays for your insurance premiums.
• Association policy – Like some employers, some associations offer policies to its members. Be sure to review the terms of the policy coverage before signing, just in case you need to leave the Association. Doing so can cancel your coverage.

Long-term care insurance coverage

Long-term care policies can cover several different types of care, including the following:

• Nursing home care
• Assisted living care
• Home health care (physical therapy or a care-giver)
• Adult day care
• Other services, such as hospice care, respite care, or care-giver training for family members

The amount of coverage depends on the type of service. Be sure to understand your policy limits so you and your family will know up front how much of your care will be covered.

Long-term care policies, however, often do not cover the following:

• Preexisting conditions
• Mental and nervous disorders
• Care-giving by family members

To get a list of registered long-term care insurance companies, call the Texas Department of Insurance (TDI) help line (800-252-2439) or visit their website.

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What Will Happen to Pets When the Owner Becomes Disabled or Passes Away?

For many pet owners, pets are members of the family. These pet owners often say that if something happens to them, they are just as concerned with what will happen to their pets as they are with what will happen to their children or spouse.

This article examines the issues surrounding caring for pets after the disability or death of the pet’s owner. Given the feelings of many individuals towards their pets, and the costs of care and longevity of some types of pets, planning in this area can be of critical importance.

A good resource for pet owners is Providing for Your Pet’s Future Without You by the Humane Society of the United States (order a free kit by calling 202-452-1100 or e-mailing petsinwills@hsus.org). It includes a door/window sign for emergency workers, an emergency contacts sticker for inside of the door, emergency pet care instruction forms for neighbors/friends/family, wallet alert cards, and a detailed instruction sheet for caregivers.

Providing for Pets Upon the Owner’s Death

Outright Gifts

An individual cannot leave money outright to a pet. An individual may leave an outright gift of money to a caretaker with the request that the caretaker care for the individual’s pet for the rest of the pet’s life. However, because the caretaker received the gift outright, and not in trust, no one is responsible for ascertaining whether the pet is receiving the care requested by the pet owner.

Once the caretaker receives the gift and the pet’s owner is gone or incompetent, there is nothing to stop the caretaker from having the pet euthanized, throwing it out on the street, taking it to a local animal shelter, or using the assets in ways unrelated to the care of the pet. In addition, once in the caregiver’s hands, the assets are exposed to the caregiver’s creditors.

Pet Trusts

A pet owner can establish a trust for the benefit of the pet. The trust will designate a trustee and a caretaker. The pet’s current standard of care determines the endowment amount required to provide care for the pet. Factors include: the cost of daily care (food, treats, and daycare), veterinary care (yearly teeth cleaning, shots, nail trimming, and emergency care), grooming, boarding, travel expenses, and pet insurance. Additional factors may apply in particular cases.

Pet trusts allow the pet owner to provide detailed requirements as to how the caregiver must care for the pets upon the pet owner’s disability or death.

Pet Identification

To prevent the caregiver/beneficiary from replacing a pet that dies in order to continue receiving trust benefits, the pet owner should specify how the trustee can identify the pet. Micro-chipping the pet or having DNA samples preserved are two methods commonly used for verification.

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Surviving the Holidays after Losing a Loved One

If you’ve had the unfortunate experience of losing a loved one this year, then you may not see the holidays as holding much to celebrate. Dreading the holidays after such a loss is a normal part of the grief process, and there really is no quick and easy solution to “getting over it” to get through the holidays. Remember above all else that the only real way to heal is with time, so while you may not be able to dodge the holidays all together, try to remember the following as you cope.

Do not expect much from the holidays for at least a year.

Expect to feel completely numb, and then accept that it’s okay to feel that way. In many ways, numbness is the best coping mechanism for pushing through the holiday season. As such, don’t force yourself to do things that could bring you out of the numbness and stir up emotions. For example, stay away from serious Christmas music and restrict your playlist to whimsical Christmas music, such as “Here Comes Santa Claus” or “Up on the Housetop.” If necessary, avoid all Christmas music.

The same goes with decorations. If you want to put up decorations, great. If you don’t feel like it, then don’t. Forcing yourself to “get into the holiday spirit” will hinder the healing, not help.

However, this does not mean that you should hinder the holiday for others. If they want to listen to holiday music and you’re afraid it will upset you, just leave the room. If your family gives gifts to celebrate, don’t deny anyone this tradition.

It’s okay to cry.

Expect you or other family members to be struck by something that will bring on tears. If it feels uncontrollable or if you’re trying to be strong for others, it’s okay to escape to the bathroom for a few minutes of alone time. If your tears or someone else’s tears spur on tears from others, band together to comfort one another and don’t dwell on the fact that you all are crying. Most likely, the tears will end as quickly as they started.

Avoid alcohol.

Alcohol has the tendency to lower one’s inhibitions, which does include emotions, so you are far more likely to shed tears or become too emotional after a drink than without a drink. If you are the type who is a sad or gloomy drinker, then avoiding alcohol over the holidays is doubly important.

Avoid activities that you always shared with your loved one.

Don’t do the things that you and your loved one always did together. Don’t go to the traditional places either. If you can, keep things simple. Maybe try to arrange the holiday to be spent at a different house this year. You can always return to traditions the following year.

Don’t spend the days leading up to the holiday worrying about how to cope with them.

The worst anxiety is always the anxiety of how to deal with the upcoming anxiety. Obsessing over how to get through the holiday will not only make it seem far worse than it is, but it can make the days seem even longer. Treat all days leading up to the holiday as ordinary days and remember that the holiday lasts only 24 hours. Once it is over, make sure it is completely over so you can return to your regular routine and let time run its course.

To anyone who will go through the holidays this year with the loss of a loved one, remember that your loved one would want you to do whatever you need to do–within reason–to get through the day as smoothly as possible.

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Does a Supplemental Needs Trust Need a Payback Provision?

The quick answer is that it depends on the source of funds used to create the trust.

Before we get too much further in, let me give you the definition of a Supplemental Needs Trust or a Special Needs Trust. A Supplemental Needs Trust is a trust that is designed to protect assets for an individual with a disability. These trusts protect the eligibility for government benefits that are asset and income based. These trusts supplement what is available under the government benefits without jeopardizing these benefits.

It is important to realize when to use a payback provision in a Supplemental Needs Trust and when it is unnecessary. A payback provision is required when the supplemental needs trust is funded from the assets of the individual with a disability. This trust must include a provision regarding paying back the state for any benefits paid on that individual’s behalf. If the trust is funded by a third party, this provision is not required.

Whether it’s necessary to include a payback provision often confuses clients and even professionals, who are not experienced in this area. I have heard of a situation where a mother decided not to leave assets to the disabled child, because she is concerned about the payback provision applying. She was not given correct information. Because any trust set up by the mother is a third party supplemental needs trust, no payback is required. If a payback provision is included when it is not necessary, then assets that should have gone to the family or other designated beneficiary will instead be paid to the state.

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Health and Education Exclusion Trusts (HEET)

The Health and Education Exclusion Trust (HEET) is a dynasty trust intended to pay medical and tuition expenses of persons two or more generations younger than the person who creates the trust. Usually, grandparents create a Health and Education Exclusion Trust for the benefit of their grandchildren. These trusts are created for generation-skipping transfer (GST) tax purposes.

To qualify as a HEET, the trust must have at least one beneficiary that is a charity with a substantial present economic interest. Because a charity is a non-skip-person, by vesting a charity with an interest, the trust avoids taxable transfers either upon creation or at the time of any subsequent distribution, unless the charity was included primarily to postpone or avoid application of the GST. There is no guidance as to the definition of “substantial present economic interest.” Most attorneys consider a 10% unitrust amount paid annually to charity sufficient to demonstrate that the charity is a bona fide continual non-skip-person beneficiary.

A Health and Education Exclusion Trust can be structured as a grantor or a non-grantor trust. A grantor trust would not be diminished by income tax during the grantor’s lifetime. Upon the grantor’s death, it would cease to be a grantor trust and would instead be taxed as a complex trust. A non-grantor trust would be able to maximize the use of the charitable deduction. There are no charitable deduction adjusted gross income limitations applicable to trusts as with individual taxpayers. So, a non-grantor trust may deduct up to 100% of its income for charitable contributions. On the other hand, a non-grantor trust creates an income tax liability for its non-charitable beneficiaries. Distributions paid on behalf of an individual beneficiary may carry out income on behalf of that beneficiary, who would then be required to pay income tax on that distribution under IRC §652 or §662.

The trust should specifically define those distributions that are “qualified transfers,” so that a trustee without familiarity of the Code would have a guide built into the trust document. With respect to education, these include tuition payments to an educational organization described in IRC §170(b)(1)(A)(ii) for income tax purposes (one that maintains a regular faculty and has both a regularly-enrolled body of students and an established curriculum), for the education or training of an individual, if paid on behalf of the skipperson directly to the educational institution. Payments for other expenses, such as books, room, board, and fees–even if they are made directly–are not qualified transfers and would be subject to GST tax upon distribution.

Qualified transfers for health care are defined as payments to any person who provides medical care (as defined in IRC §213(d) for income tax purposes) as payment for such medical care.14 Accordingly, qualified transfers for medical care include medical and long-term care insurance premiums, which are within the definition of medical expenses for income tax purposes. Over-the-counter medications and cosmetic surgery would not be eligible transfers.

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Types of Ancillary Documents

When many people draft their Last Will and Testament or Living Trust, they often don’t take into account any of the supplemental legal documents that bolster their wishes and ensure specific plans are carried out. These are often called ancillary documents for estate planning. Below is a list of all the types of ancillary documents and their purpose. If you already have drafted a Will or Trust  or are planning to draft a Will or Trust, make sure you have not left out of your planning any important ancillary documents needed for your situation.

Durable Power of Attorney

A Durable Power of Attorney allows you to appoint someone to make financial decisions for you if you are unable to make those decisions for yourself. If you become incapacitated, the person you name can take care of financial matters for you. The power of attorney may be general or limited. A general power of attorney will allow the person you name to do anything financial on your behalf. This authority should be only given to someone who you would trust with everything you own. A limited power of attorney can be limited to certain transactions. It is usually used for selling a house.

However, be advised that it is becoming increasingly difficult to get banks or investment firms to recognize a power of attorney. There is nothing under Texas law that requires an institution to accept a power of attorney.

Medical Power of Attorney

A Healthcare Power of Attorney or Medical Power of Attorney allows you to appoint someone to make medical decisions for you, if you become too ill or incompetent to make decisions for yourself.

Directive to Physicians and Family or Surrogates

Directive to Physicians are sometimes called “living wills.” The Directive tells the doctor whether you want life-sustaining procedures withheld or stopped in the event there is a terminal or irreversible condition. You can specify in the Directive that you want life-sustaining procedures continued even if you have a terminal or irreversible condition.

DNR

DNR stands for “Do Not Resuscitate.”  A DNR tells the medical personnel that you don’t want CPR or artificial ventilation or to generally be resuscitated under any circumstances. A DNR must be signed by a physician and two witnesses.

Organ Donation

An Organ Donation Form allows you to specify what organs you want to donate and for what purposes.

Emergency Document Card

An Emergency Document Card allows healthcare personnel access to your medical documents in the event of an emergency.

Authorization for Release of Medical Information

An Authorization for Release of Medical Information or HIPAA authorization allows you to specify who has access to your private medical information.

Declaration of Guardian

A Declaration of Guardian allows you to specify who will act as guardian of your estate and/or person in the event you become incompetent. You can also specify who you do not want to become guardian under any circumstances. Guardian of the Estate manages your assets and guardian of the person makes medical decisions and other decisions that do not involve finances.

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Caregiver Burnout

Caregivers have an incredible responsibility; one that many caring people choose to do for a living, and it’s also one that many are thrust into unprepared. Whether it’s taking care of a parent, a child, or a spouse, everyone can agree that while this duty is as stressful as it is necessary. As such, many caregivers can become afflicted with a real condition called caregiver burnout, which is a state of physical, emotional, and mental exhaustion that can also change the caregiver’s attitude from positive to negative.

Burnout most often occurs when caregivers aren’t able to get the help they need, or if they try to do more than they can, either physically or fiscally. Burned out caregivers may be fatigued, stressed, anxious, and depressed. Many also have accompanying feelings of guilt if they spend time for themselves instead of caring for their loved ones.

Some symptoms of caregiver burnout include:

• withdrawal from friends and family;
• loss of interest in activities;
• feelings of hopelessness and helplessness;
• changes in appetite and/or weight;
• sleep pattern changes;
• becoming more sickly;
• physical and emotional exhaustion; and
• unusual irritability.

Preventing Caregiver Burnout

There are some things you can do to help prevent caregiver burnout. The most important one is to be realistic with the goals for your caregiving. Set realistic goals, understand that you may need help, and remember to ask for help. Also be realistic with your loved one’s illness, especially with progressive diseases such as Parkinson’s, Alzheimer’s and terminal cancer. Don’t forget to be realistic about your own limits.

Next, remember to take care of yourself. Find someone to talk to about your feelings and frustrations, talk to a professional, or join a caregiver support group. Always, always set aside at least an hour or two a day for yourself. Don’t think of it as being selfish, because in reality, it’s a necessity.

In addition, understand that your feelings of frustration are normal. They do not make you a bad person or caregiver. Bottling them in and never venting to others is the unhealthy option that can lead to burnout.

If You Have Caregiver Burnout or Know Someone Else Who Does

If you or someone you know is a caregiver and is already suffering from stress and depression, seek medical attention as soon as possible. Both stress and depression are treatable.

Next step: contact outside resources for assistance. These can include home health services, adult day care, private care aides, professional caregivers, caregiver support services, and nursing homes or assisted living facilities.

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Preserving Your Family History

When you think of estate planning, you may only think of setting up Wills, Trusts, and possibly a Medical Power of Attorney. You think of how to divide property and who will make healthcare decisions when Grandma is no longer able to.

However, planning your estate or helping Grandma plan her estate can be far more than a simple division of assets; it can also be a way of preserving your family history.

By creating a “Legacy Plan”, you can plan for how you will preserve your family stories and information for your children and your grandchildren. It can be as simple as writing all of the stories down and placing them in a notebook to include in the division of family assets or as elaborate as individually dividing up all of one’s family heirlooms and memorabilia.  Also, these memories can be videotaped or audiotaped.

Even if you think that your family does not have that many interesting stories, what you may learn while asking around could surprise you. Think of any stories that your grandparents or parents told you about their past, and think of how wonderful it would be for your own grandchildren and great-grandchildren to continue telling those stories and/or treasuring that watch that your grandfather gave your grandmother while he was in Europe for World War II.

If you are helping your loved ones plan their estates or when you start thinking of planning your own estate, be sure to consider discussing how to preserve your family history. Whether it’s stories or heirlooms, all are central to your family’s legacy and should be shared down the line as your family grows.

However, not every attorney who offers estate planning services will offer ideas for a Legacy Plan outside of your typical Will documents. This is yet another reason why you should work with an experienced estate planning attorney who specializes in this area. An attorney who focuses his or her practice primarily on estate planning will be able to structure a customized plan for your individual family needs, thereby ensuring that your family legacy will indeed be preserved.

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Veterans’ Benefits Planning

More often than not, veterans walk away from their time of service without fully understanding what benefits are available to them.  The following are answers the most common questions about planning with Veterans’ benefits. If you have a question not listed here, do not hesitate to contact our office to discuss your questions and your individual needs for Veterans’ benefits planning.

What are the requirements to obtain Aid and Attendance?

1. The veteran has to have served in the military for one day during a war.
2. The veteran must have served in the military for 90 days.
3. The veteran must not have received a dishonorable discharge.
4. The veteran must need assistance with activities of daily living.

Can I give away my assets and obtain Veterans benefits (such as Aid & Attendance) if I have too much assets for eligibility ?

Yes. There is no look-back period or transfer penalty if you transfer assets prior to applying for such benefits. However, there are several ways of making transfers and sometimes it makes more sense to simply add names to an account. Tax issues and potential, future need for Medicaid (especially if the applicant is likely to be in a nursing home within 5 years) should also be considered. Furthermore, there are some exceptions to the rule. For example, you cannot gift your assets to a member of the same household, all property rights must be relinquished, etc.

Is the surviving spouse of a Veteran sometimes eligible for such Veterans’ benefits?

Yes.

Will the Veterans’ Administration try to recover against excluded assets, such as a home or car, after death if benefits are received?

No. This different than the Medicaid rules as explained above.

Can I always keep $80,000 of assets and get VA pension benefits?

No. There is a determination whether or not the claimant’s financial resources are sufficient to meet his or her basic needs. Pension is based on need. Contrary to what most people have heard, there is no specific amount of money used to determine the level of assets that will disqualify them. Generally, the older the claimant, the less they will need to cover for their lifespan (and thus less assets can be protected).

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Medicaid Planning

Planning for Medicaid is not really something any of us have in the forefront of our minds when planning for our future and eventual retirement, and while many of us will never need it, it’s always good to know your options when it comes to Medicaid planning.

The following are the most frequently asked questions I receive regarding Medicaid and Medicaid planning.

What is a “Miller Trust” or “Qualified Income Trust”?

Medicaid has income eligibility requirements (in addition to resource limits and other requirements).   The income cap for year 2011 is $2022 per month. If an individual, who is applying for Medicaid, has income over the cap, then a “Miller Trust” can be created to hold the income to pass such eligibility requirement. “Miller Trusts” are also known as “qualified income trusts” or as “QITs.”

Will I, as the spouse who lives at home be allowed to keep any of my spouse’s income if my spouse lives in a nursing home  and is on Medicaid?

It depends on the income of each of you and what strategy is employed. If the income of the community spouse is greater than what is called the minimum monthly maintenance needs allowance (“MMMNA” is $2739 for 2011), then there are limited situations when we can divert income from the institutionalized spouse so that this income is above the MMMNA.   Also, There can be a diversion of income to the community spouse so that the community spouse has income up to the MMMNA.  However, it is best to not “spend down,” so this situation must be carefully reviewed with your experienced elder law attorney.

If we get my loved one on Medicaid, are we going to lose the family home?

Under the Texas Medicaid Estate Recovery Program, the state has a right to make a claim against the probate estate of the Medicaid recipient to the extent that benefits have been advanced if the recipient applied for Medicaid on or after March 1, 2005. There are several exceptions to the rule.  Presently, there are also several planning methods to avoid the claim of the state against the home.

Can I transfer or give away my assets to obtain Medicaid?

A transfer of assets can result in a penalty causing ineligibility for Medicaid.   Transfers for less than fair market value on or after February 8, 2006 are subject to a 5 year look-back period.  The transfer penalty is determined by dividing the average daily cost of a nursing home in Texas into the amount of the uncompensated transfer from the month of the transfer.  The transfer penalty period resulting in ineligibility for Medicaid starts from the date of application or from when one is otherwise eligible for Medicaid.

Can’t I always transfer $13,000 per year to my children without a penalty?

The annual exclusion for gift tax purposes  is still subject to the Medicaid rules. So, the transfer could result in a transfer penalty, depending on when the uncompensated transfer was made, and if there was an existing transfer penalty and if the transfer was to a disabled child.

What are countable resources and non-countable resources?

Most assets that can be converted to cash are considered countable (such as the cash surrender value of life insurance policies, stocks, IRAs, mutual funds, bank accounts, etc.) and can be used for your support. They are considered in determining Medicaid eligibility. Excluded resources, such as the homestead, a burial space, term life insurance, etc. are considered non-countable for Medicaid eligibility purposes.

Do the accounts that I own jointly with someone else count toward my Medicaid eligibility?

It is assumed that the account belongs to the applicant unless it could be proven otherwise.

Do the assets of the community spouse count even if there is a prenuptial or postnuptial agreement?

Yes.

Is buying an annuity the best way to protect all of my resources?

It depends on the factual situation. With the rule change that became effective as of September 1, 2004, “Medicaid annuities” became more popular when there is an institutionalized spouse and a community spouse, and their total non-countable resource income exceeds or is close to the MMMNA ($2739 for 2011).  Before you make a decision, an elder law attorney should be consulted to consider all of the options. Be wary of anyone who advises this is the only option.

If a Medicaid recipient inherits, can he or she lose his or her Medicaid benefits?

Yes, so there should be planning to prevent this a possibility, such as setting up Supplemental Needs Trusts.

Can the community spouse keep several hundred thousand dollars and still get Medicaid eligibility for his or her spouse without having to change the nature of resources of the community spouse?

Depending on the income of the community spouse and other factors, often the answer is “Yes.”

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Planning for a Disability

Planning for Disability – The Good, The Bad and The Necessary

No one likes to think about the possibility of their own disability or the disability of a loved one. However, as we’ll see below, the statistics are clear that we should all plan for, at the very least, a temporary disability. Disability planning is one area where we can give each and every person and family we work with great comfort in knowing that, if the day comes for themselves or a loved one, they will be prepared.

Most Individuals Will Face at Least a Temporary Disability

Study after study confirms that nearly everyone will face at least a temporary disability sometime during their lifetime. More specifically, one in three Americans will face at least a 90-day disability before reaching age 65 and, as the following graph depicts–depending upon their ages–up to 44% of Americans will face a disability of up to 4.7 years. On the whole, Americans are up to 3.5 times more likely to become disabled than die in any given year.

Many Persons Will Face a Long Term Disability

Unfortunately, for many Americans the disability will not be short-lived. According to the 2000 National Home and Hospice Care Survey, conducted by the Centers for Disease Control’s National Center for Health Statistics, over 1.3 million Americans received long term home health care services during 2000 (the most recent year this information is available). Three-fourths of these patients received skilled care, the highest level of in-home care, and 51% needed help with at least one “activity of daily living” (such as eating, bathing, getting dressed, or the kind of care needed for a severe cognitive impairment like Alzheimer’s disease). The average length of service was 312 days, and 70% of in-home patients were 65 years of age or older. Patient age is particularly important as more Americans live past age 65. The U.S. Department of Health and Human Services Administration on Aging tells us that Americans over 65 are increasing at an impressive rate:

The Department of Health and Human Services also estimates that 9 million Americans over age 65 will need long term care this year. That number is expected to increase to 12 million by 2020. The Department also estimates that 70% of all persons age 65 or older will need some type of long term care services during their lifetime.

The Alzheimer’s Factor

Alzheimer’s is growing at an alarming rate. Alzheimer’s increased by 46.1% as a cause of death between 2000 and 2006, while causes of death from prostate cancer, breast cancer, heart disease and HIV all declined during that time period. In 2010 The Alzheimer’s Association published a report titled, “Alzheimer’s Disease Facts and Figures” that explored different types of dementia, causes and risk factors, and the cost involved in providing health care, among other areas. In this report were some eye-opening statistics:

• An estimated 5.3 million Americans of all ages have Alzheimer’s disease. This figure includes 5.1 million people aged 65 and older and 200,000 individuals under age 65 who have younger-onset Alzheimer’s.
• One in eight people aged 65 and older (13%) have Alzheimer’s disease.
• Every 70 seconds, someone in America develops Alzheimer’s. By mid-century, someone will develop the disease every 33 seconds.
• The number of people aged 65 and older with Alzheimer’s disease is estimated to reach 7.7 million in 2030 – more than a 50% increase from the 5.1 million aged 65 and older currently affected.
• By 2050, the number of individuals aged 65 and older with Alzheimer’s is projected to number between 11 million and 16 million, unless medical breakthroughs identify ways to prevent or more effectively treat the disease.

Caregivers are at Risk of Developing Health Problems

There were approximately 10.9 million unpaid caregivers (family members and friends) providing care to persons with Alzheimer’s or dementia in 2009. According to the Alzheimer’s Association, those persons are at high risk of developing health problems or worsening existing health issues. For example, family and other unpaid caregivers of people with Alzheimer’s or another dementia are more likely than non-caregivers to have high levels of stress hormones, reduced immune function, and slow wound healing as well as developing hypertension and coronary heart disease.

Spouses who are caregivers for the other spouse with Alzheimer’s or other dementia are at greater risk for emergency room visits due to their health deteriorating from providing constant care. A study mentioned in the 2010 Alzheimer’s Association report found that caregivers of spouses who were hospitalized for dementia were more likely than caregivers of spouses who were hospitalized for other diseases to die in the following year.

Receiving Care

According to the National Nursing Home Survey 2004 Overview, the national average length of stay for nursing home residents is 835 days, with over 56% of nursing home residents staying at least one year. Significantly, only 19% are discharged in less than three months. Those residents who were married or living with a partner at the time of admission had a significantly shorter average stay than those who were widowed, divorced, or never married. Likewise, those who lived with a family member prior to admission also had a shorter average stay than those who lived alone prior to admission.While a relatively small number (1.56 million) and percentage (4.5%) of the 65+ population lived in nursing homes in 2000, the percentage increased dramatically with age, ranging from 1.1% for persons 65-74 years to 4.7% for persons 75-84 years and 18.2% for persons 85+. According to the U.S. Census Bureau, in 2009, 68% of nursing home residents were women, and only 16% of all residents were under the age of 65. The median age of residents was 83 years.

According to the MetLife 2010 Mature Market Institute, current estimates indicate that nearly 1 million people live in approximately 39,500 assisted living residences in the U.S. The average age of an assisted living resident is 86.9 years old, and the median length of stay in assisted living is 29.3 months.

Long-Term Care Costs can be Staggering

Not only will many individuals and families face prolonged long term care, in-home care and nursing home costs continue to rise. According to the 2010 MetLife Market Survey of Nursing Home, Assisted Living, Adult Day Services, and Home Care Costs, national averages for long term care costs are as follows:

• Monthly base rate (room and board, two meals per day, house keeping and personal care assistance) for assisted living care is $3,293 or $39,516 annually, a 5.2% increase from 2009.
• Daily rate for a private room in a nursing home is $229, or $83,585 annually, a 4.6% increase over the 2009 rate.
• Daily rate for a semi-private room in a nursing home is $205, or $74,825 annually, a 3.5% increase over the 2009 rate.
• Hourly rate for home health aides is $21, unchanged from 2009.

These costs vary significantly by region, and thus it is critical to know the costs where the individual will receive care. For example, the average cost for a private room in a nursing home is much higher in the Northeast ($381 per day, or $139,065 annually, in New York City) than in the Midwest (only $174 per day, or $63,510 annually, in Chicago) or the West ($238 per day, or $86,870 annually, in Los Angeles).

Long-Term Care Insurance May Cover These Costs

If a parent, their spouse, or family member needs long term care, the cost could easily deplete and/or extinguish the family’s hard-earned assets. Alternatively, seniors (or their families) can pay for long term care completely or in part through long term care insurance. Most long term care insurance plans let the individual choose the amount of the coverage she wants, as well as how and where she can use her benefits. A comprehensive plan includes benefits for all levels of care, custodial to skilled. Clients can receive care in a variety of settings, including the person’s home, assisted living facilities, adult day care centers, or hospice facilities.

Planning in the Event Long Term Care Insurance is Unavailable or Insufficient

Unfortunately, many older Americans will either be medically ineligible for long term care insurance or unable to afford the premiums. In that event, more aggressive planning should be considered as early as possible to make sure life savings are not depleted as a result of having to pay out-of-pocket for care. With the help of an elder law attorney, a plan can be created that will protect much of the assets of an individual or couple that would otherwise be at risk of being depleted.

All Planning Should Thoroughly Address Disability

When a person becomes disabled, he or she is often unable to make personal and/or financial decisions. If the disabled person cannot make these decisions, someone must have the legal authority to do so. Otherwise, the family must apply to the court for appointment of a guardian over the person, property, or both. Those who are old enough to remember the public guardianship proceedings for Groucho Marx recognize the need to avoid a guardianship proceeding if at all possible.

At a minimum, seniors need broad powers of attorney that will allow agents to handle all of their property upon disability, as well as the appointment of a decision-maker for health care decisions (the name of the legal document varies by state, but all accomplish the same thing). Alternatively, a fully funded revocable trust can ensure that the senior’s person and property will be cared for as desired, pursuant to the highest duty under the law: that of a trustee.

Conclusion

The above discussion outlines the minimum planning clients should consider in preparation for a possible disability. It is imperative that clients work with a team of professional advisers (legal, medical and financial) to ensure that, in light of their unique goals and objectives, their planning addresses all aspects of a potential disability. Please contact us if you have any questions or would like to discuss any information in this newsletter further.

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Facebook is a New Venue for “Grandparent Scam”

Officials with the Better Business Bureau of Northeast California are warning older adults about a new twist in an old telephone scam that preys on grandparents who think they are helping their grandchildren in an emergency. The scam, which first surfaced in 2008, involves a grandparent receiving a call from a person claiming to be their  grandson or granddaughter who is in legal trouble in a foreign country and needs emergency cash. To make the pleas seem even more urgent, calls are usually made in the middle of the night, and the scammer always insists that funds be sent by wire or overnight delivery.

In the past, wary would-be victims could easily rattle the scammer by asking personal questions only certain people could answer, such as the name of a childhood pet, their nickname, or the college they attended. Today, however, with the popularity of social networking sites, such as MySpace, Facebook, and even Twitter, the bureau said the scammer may already have that information and a lot more. For example, the bureau said that a Sacramento grandmother was recently contacted by a young woman who claimed to be her granddaughter. The girl said she was arrested in Canada and needed $4,500 wired to her to get out of jail. Even after asking several questions, the grandmother said she was absolutely convinced the girl was her granddaughter. It turns out that the scammer was looking at a Facebook page the real granddaughter had posted and was simply reading off dozens of facts about the family, addresses, and where she went to college. The information was easily accessible, because the granddaughter’s Facebook privacy settings weren’t high enough, allowing her account to be viewed by just about anyone.

Similar stories are hitting us here at home as well. The Denton Record Chronicle reported that someone tried to scam a man for $11,200. The man explained that a young man who sounded like his grandson called, saying that he was arrested in Canada and needed $11,200 wired to him to pay his bail. At that point, another man claiming to be “Officer Sullivan” came on the line and told the grandfather that he arrested his grandson in Ontario after finding marijuana in his car. The officer then gave the grandfather instructions on how to wire the money to an “international bondsman” in Houston and were the nearest wire service was in Denton.

The grandfather did wire the money to the bondsman, but when he returned home, he received a call from his grandson saying that he was not in Canada and was not in jail. Fortunately, the grandfather was able to go back to the wiring service and cancel his transaction.

Unfortunately, this scam has been around for awhile. The Social Media SEO blogged about it last year, urging everyone to warn friends and family about this scam. Most likely our grandparents are not using Facebook or any other social media site, so be sure to advise your grandparents about this scam and also make sure your privacy settings on any social media network are set so only your friends and family can see your information.

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What should you look for in an estate planning attorney?

When one looks for an estate planning attorney, they often don’t look for a specific estate planning attorney. They may talk to their own attorneys, friends who are attorneys, or any attorney who claims to handle estate planning affairs. Despite how basic a will preparation may seem, no one should have “just anybody” draft one for them. Finding the right attorney to plan your estate is crucial, and you need to analyze any attorney you are considering to handle something as important as your family and your estate. So before you schedule that initial consultation, be sure to ask and answer the following questions about your prospective lawyer.

Is the attorney’s primary focus on estate planning?

This question may or may not be important to you from the standpoint that if all you think you need is a simple Will, power of attorney, and/or health care documents. An attorney whose practice is broad but includes simple estate planning and probate matters might work just fine in this situation, but an inexperienced attorney may not recognize issues that need to be addressed in your estate plan. On the other hand, if you have a complicated family or financial situation or a taxable estate, then you’ll need to work with someone whose primary focus is on estate planning and estate tax reduction.

How many years of experience does the attorney have?

The more years of experience the attorney has, the more the attorney will have had the opportunity to see their essential estate planning documents in action when a client becomes disabled or dies. The Wills, trusts, powers of attorney, and health care documents used by attorneys who have been in business for a while have been revised and tweaked to deal with the everyday situations that their clients encounter. This will give you the peace of mind to know that the documents they prepare for you will work when they’re needed.

Does the attorney assist clients with properly funding their assets into a revocable living trust?

Many attorneys create beautiful estate plans for their clients but then fail to assist them with the next important step: funding the revocable living trust. A well-drafted trust will be virtually useless immediately after you die if your assets aren’t titled in the name of the trust while you’re still alive. Some firms you comprehensive written instructions. Still, others will merely mention the importance of funding but fail to give you any guidance whatsoever. I strongly recommend that you work with an attorney who will oversee the funding process and be willing to possibly pay the attorney an extra fee to do so, because chances are you won’t complete all of the necessary funding on your own.

Does the attorney charge a flat fee or an hourly rate for providing estate planning and other services?

This is an important question to ask so that you won’t be surprised by hidden fees and costs. These days the majority of estate planning attorneys charge a fixed fee for most, if not all, of their services. This will give you the peace of mind to know that the flat fee is all that you’ll be required to pay. You’ll need to understand, however, what the flat fee does and doesn’t cover, and when the attorney will charge an additional flat fee or start billing you on an hourly basis.

Ask yourself: “Can I see myself working closely with this attorney?”

Even if the prospective attorney answers all of the other questions to your satisfaction, this is the most important question that you need to ask yourself. If you aren’t comfortable with the attorney, then chances are you won’t be happy with the attorney’s work. But don’t be alarmed; it’s better determine this sooner rather than later. Simply move on until you find an attorney who you feel comfortable enough to trust with your personal and financial information.

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Ethical Wills

Every Texas attorney has studied the various estate planning documents, including Wills, Revocable/Irrevocable Trusts, Durable Powers of Attorney, Medical Powers of Attorney, and so on in law school. Recently, we have all seen through the power of the media the importance of a Directive to Physicians, which is also known as a Living Will. All of these documents are fairly traditional and are usually included in any estate planning package. However, are those the only estate planning documents you have heard of?  Are you familiar with an instrument known as an Ethical Will?

While an Ethical Will might sound like the newest type of legal document, it isn’t. Actually, it is not new at all. Ethical Wills have been in use for over 3000 years. It is a tradition that can even be found in the Old and New Testament of the Bible.

So you ask, “What does an Ethical Will actually do?”  An Ethical Will is a non-legal document that allows a person to share his or her personal values, life’s lessons, family history, family traditions, expectations for the future, dreams, hopes, personal religion/spiritual ideals, and anything else that might be important to that person with his or her family and friends. Ethical Wills can also provide future generations with an individual’s health history in order to inform descendants of potential health issues they could possibly face down the road.

This document can be written at various stages in life and can be amended at any time throughout an individual’s life. Ethical Wills have been written by couples who are engaged to be married, women and men who are welcoming newborns into their lives, families that are growing in size, middle-aged single and married individuals, individuals facing terminal or life-threatening illness, and so on.

An Ethical Will can be addressed to various people including a spouse or children, to the family, to parents, to a friend, to anyone of importance. A person can also have multiple Ethical Wills that are each unique to the individual it is addressed to. As in any estate planning document, subheadings can help clarify the purpose of each individual section. Some examples of Ethical Will sections include “Family History,” “What You Mean to Me,” “My Definition of Success,” “The Importance of Spirituality,” “The Importance of Humor,” “The Importance of Education,” and “What I will Miss Most About You.”  There are numerous subheadings which can be added into an Ethical Will.

An Ethical Will can be read to family and friends while the individual is still living or it can be read with the traditional estate planning documents at a memorial/funeral service or in private setting.

Ethical Wills allow for an individual to be remembered for what he or she values in life. It allows the person to tell his or her story to his or her loved ones and have it last forever. An Ethical Will can also aid an individual in coming to terms with his or her mortality. It allows for closure by providing his or her family and friends with the framework he or she has lived by and the reasons why. It permits one to covert his or her personal experiences into lessons which can be forever passed down in years to come. In the end, it could potentially become one of the most appreciated contributions to your family and friends.
While Ethical Wills can be drafted at any time in one’s life, numerous lawyers and estate planners recommend 
should be drafted or at the same time the client executes a legal Will. This is because an Ethical Will can be added 
to the traditional estate planning documents. It can actually be the foundation and reasoning behind why a client 
possessions to go to certain individuals at the time of his or her death. An Ethical Will can help the client think 
 through his or her specific bequests and aid in that decision making process of determining “who will get what.”  Therefore, an Ethical Will can be drafted in support of a legal Will by stating the rationale behind a client’s various bequests.

Ethical Wills have become increasingly more popular in recent years. While an Ethical Will is not a legally binding document, it is a way to tell a family and friends how much they mean to a person, and it allows that person to leave a story, a legacy, with his or her name.

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Avoiding Disaster for Blended Families

You don’t need to be Elizabeth Taylor to be on your second, third, or even fourth or fifth marriage. If you’ve had more than one spouse, you have special financial and estate planning needs, especially if you have children with each spouse. Neglecting these issues is a surefire way to create a less-than-desired result in the event of illness, incapacity, or death. The best way to have a smooth transition upon disability or death is to create a comprehensive strategy before you aren’t here to execute the papers.

A Special Strategy

Remarriage may result in cordial, but often not close, step relations. Frequently, such people thrown together by marriage merely tolerate each other until the biological parent dies or becomes disabled. For example, if the spouse who has the majority of assets dies first, who wins? The surviving spouse? The children? If a parent is not careful, his or her children may be unintentionally disinherited. If the children are protected, the surviving spouse may be disinherited. What’s a person to do?

A special plan for a blended family would include a prenuptial agreement along with a fully funded, revocable living trust. This can only be accomplished by working with a trusted adviser who has specialized knowledge in extended families. Another key component in an estate plan for a blended family is the successor trustee. It’s essential that the successor is savvy, compassionate, and, hopefully, familiar with family issues.

A Checklist to Guide You

The following are some questions you should address with your adviser:

• How is the successor trustee selected?
• How will the successor trustee feel about paying money to the person who might not select him?
• How can the surviving spouse be prevented from changing the deceased spouse’s beneficiaries?
• How will the children feel about the step-parent spending their inheritance?
• How will the children feel about the spouse making cessation of life choices?
• What is the relationship between the successor trustee and the surviving spouse or the children?
• How do the trusted advisers ensure the succession plan will go as planned?
• How will the assets earned during the marriage be distributed?
• How should the required retirement plan distributions be made?
• How long should the children wait to receive their money, especially if the surviving spouse is only a few years older than the children?

By addressing these issues now, you’ll have greater peace of mind. You can ensure that your goals, aspirations, and desires will be carried out when you’re no longer here to oversee them yourself.

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Estate Planning for Children with Special Needs

If your child has physical, emotional or mental challenges, careful estate planning is crucial. One of the most important reasons to create a proper estate plan is to preserve the child’s eligibility for government benefits and other programs. There are many things that could go wrong and  jeopardize eligibility for those benefits.  One of those includes beneficiary designations in retirement plans and other accounts. If these funds are left to children with special needs, it can have a dramatic unintended financial impact on those receiving needs-based government benefits. For instance, if the child qualifies for Medicaid and receives aid to help with his daily living and medical needs. If your retirement funds or other accounts pass directly to your child, then receiving those assets may disqualify him or her for Medicaid benefits. In layman’s terms, since only a home, a car used as transportation for medical care, and $2,000 in cash are exempt from Medicaid calculations, inheriting a large sum of money could disqualify your child for Medicaid and disability benefits.

The best way to avoid this situation is to create a Supplemental Needs Trust, and then place or leave the assets intended for that child in the Trust. A Supplemental Needs Trust is designed to supplement benefits received from government programs. Instead of paying for medical care, for example, the trustee can then use those funds for what the child needs and pay for things Medicaid will not pay for. Retirement plans and gifts can then be left directly to the Trust, which could be used for clothing, entertainment, vacations, and other discretionary spending for the child.

Contact our office for help in creating a Supplemental Needs Trust. When properly designed, the Trust can receive retirement funds or other inheritance without creating negative repercussions. Your goal is to help your child with special needs without compromising his or her benefits, so make sure your best intentions are truly realized.

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An Inventive Way to Keep Aging Family Members Close

Courtesy of medcottage.com

A small firm in Virginia that focuses on revolutionizing the way that Americans care for their elderly family members recently presented its first prototype of a portable, high-tech room – called a MedCottage – that would provide temporary shelter for a sick family member in the family’s own backyard. The prototype is a 12-by-24-foot cottage filled with biometric technology, thereby allowing the family and even healthcare providers to monitor the relative’s condition. It contains air filtration systems, video links, devices for monitoring vital signs remotely and even devices that can sense if the relative falls.

Until now, this idea for the MedCottage has only existed on paper. Before they completed their first prototype, the Virginia General Assembly gave them a huge boost for production and mass marketing. The Assembly passed law HB1307 that overrides local zoning restrictions to allow families to implement such a building on their property with a doctor’s order. The AARP has said that local zoning restrictions are one of the biggest obstacles to making “accessory dwelling units” a viable solution when it comes to caring for elderly family members.

However, even though the state legislature almost unanimously passed the bill and Virginia Governor Robert F. McDonnell already signed it into law, nay-sayers have nicknamed the MedCottages as “granny pods” and believe that such structures could create conflicts between neighbors who do not find the residences to be pleasing to the eye. Some are also concerned that the MedCottages would open up more cases of neglect involving the elderly and disabled.

There is no word on if these dwellings will make it to Texas, but if they prove to be successful in Virginia, then perhaps other states – including Texas – will consider MedCottages as an alternative to nursing homes.

For more on the story, visit the Washington Post (July 20, 2010).

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5 Mistakes That Special Needs Parents Often Make

There are many misconceptions regarding special needs planning that can result in costly mistakes in planning for special needs beneficiaries.

MISTAKE #1:  Counting on siblings to use their money to take care of the special needs child.

Parents may be tempted to rely on their other children to provide,  from their own inheritances, for a special  needs child.  This can be temporary if their other children are financially secure and have money to spare. However,  it is not a solution that  will protect a special needs child after parents have died or when siblings have their own expenses and financial priorities.

MISTAKE #2: Disinheriting the special needs beneficiary.

Many disabled people rely on SSI, Medicaid or other government benefits.  Parents may have been advised to disinherit their special needs children to protect their children’s public benefits.  But these benefits rarely provide more than basic needs. When a loved one requires, or is likely to require, governmental assistance to meet his or her basic needs, parents, grandparents and others should consider establishing a Special Needs Trust.

MISTAKE #3: Procrastinating.

Because no one knows when we may die or become incapacitated, it is important  that  parents plan for a beneficiary with special needs early,  just as they should for other dependents such as minor children.  However, unlike most other beneficiaries special needs beneficiaries able to compensate for a failure to plan.  Minor beneficiaries  without special needs can obtain resources as they reach adulthood and can work to meet essential needs, but special needs beneficiaries may never have that ability.

MISTAKE #4: Ignoring the special needs when planning.

Planning that is not designed with the beneficiary’s special needs in mind will probably render the beneficiary ineligible for essential government benefits.  A properly designed Special Needs Trust promotes the  special  needs  person’s comfort  and  happiness without sacrificing eligibility.  Special needs can include training and education, insurance, transportation, entertainment, vacations and essential dietary needs.

MISTAKE #5: Failing to properly fund and maintain the plan.

When planning for a special  needs  child,  it is absolutely critical that there are sufficient assets available for the special needs beneficiary throughout his or her lifetime. In any instances, life insurance can be used to provide this liquidity.

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Disability—Don’t Think “It Can’t Happen To Me”

Studies confirm that nearly everyone will face at least a temporary disability sometime during their lifetime. One-third of Americans will face a disability lasting at least 90 days before they reach age 65.

In any given year, it is more than 3 times more likely that you will become disabled than die. No one likes to think about the possibility of their own disability or the disability of a loved one.  The best thing you can do for yourself and your loved ones is to be prepared. The number of people requiring long-term home health care exceeded 1 million in 2000 (the most recent year this information is available). The average length of service was 312 days. The national average length of stay in a nursing home is 892 days and over half of the residents stay at least one year.

Nursing home costs continue to rise. The average daily rate for a private room in a nursing home is $75,190 annually and the average daily rate for a semi-private room in a nursing home is $66,795 annually. A recent Harvard University study indicates that 69% of single people and 34% of married couples would exhaust their assets after 13 weeks (i.e., 91) days in a nursing home!
As the Harvard University study demonstrates, if you, your spouse, or family member needs long- term care, the cost could easily deplete and/or extinguish the family’s hard-earned assets. Alternatively, you could pay for long-term care completely or in part through long-term care insurance.

Most long-term care insurance plans let you choose the amount of the coverage you want, as well as how and where you can use your benefits. A comprehensive plan includes benefits for all levels of care, custodial to skilled. You can receive care in a variety of settings, including your home, assisted living facilities, adult day care centers or hospice facilities.

The government only pays for long-term costs in extremely limited circumstances and only after most of your assets have been spent, typically only for skilled care and only for a short duration.

It is a good idea to make sure your estate plan covers disability. When you become disabled, you’re often unable to make personal and/or financial decisions. If you cannot make these decisions, someone must have the legal authority to do so. Otherwise, the family must apply to the court for appointment of a guardian for either the client’s person or property, or both.
At a minimum, you need broad powers of attorney that will allow agents to handle all of your property upon disability, as well as the appointment of a decision-maker for health care decisions (the name of the legal document varies by state, but all accomplish the same thing). Alternatively, a fully funded revocable trust can ensure that the client’s person and property will be cared for as you desire, pursuant to the highest duty under the law – that of a trustee.

An estate plan that has a revocable trust as its foundation not only helps ensure that you will be cared for as you desire, but it can ensure consistent asset management through the continued use of your existing financial advisers.

Under the Health Insurance Portability and Accountability Act of 1996 (HIPAA), absent a written authorization from the patient, a health care provider or health care clearinghouse cannot disclose medical information to anyone other than the patient or the person appointed under state law to make health care decisions for the patient. The penalty for failure to comply with these rules is severe: civil penalties plus a criminal fine of $50,000 and up to one year of imprisonment per occurrence, and worse if the disclosure involves the intent to use the information for commercial advantage, personal gain, or malicious harm.

These HIPAA rules became effective only recently. As a result, doctors, hospitals and other health care providers now refuse to release any information absent a release from the patient. For Example, hospital staff will go so far as to refuse to disclose whether one’s spouse or parent has been admitted to the hospital. The inability to receive information about a loved one could become very troubling when the information concerns treatment as part of long-term care.

The above discussion outlines the minimum planning you should consider in preparation for a possible disability. It is imperative that you work with you and your team of professional advisers to ensure that, in light of your unique goals and objectives, their planning addresses all aspects of a potential disability.

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