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Sincerely,
Anthony J. Enea, Esq.
Managing Member
Enea, Scanlan & Sirignano, LLP
Phone: 914-948-1500
It is estimated that approximately half of all life insurance policies owned by seniors will be allowed to lapse without any benefits ever being paid out other than any remaining cash surrender value. With approximately 19.2 trillion dollars of life insurance in force in the United States at any given time, the amount that may lapse without paying any meaningful benefits to the consumer, his or her family and/or a charity of their choosing, is staggering.
Consumers allow their life insurance policies to lapse for a variety of reasons. Some can no longer afford the premiums. For others, the reasons for originally purchasing life insurance no longer exist.
Until the recent formation of the Insuring a Better World Fund (IABWF), I do not believe a single entity existed that aggregated and administered policies for the benefit of charity when the policy was no longer wanted or would be lapsing. The IABWF is able to accomplish the aforestated while at the same time relieving the consumer of the obligation of paying the premiums due on said policy. Additionally, the consumer will be entitled to a charitable deduction based on the fair market value of the donated policy.
The IABWF does not purchase the life insurance policies and is not a life settlement. It is a charitable entity operated by the Inter-Vivos Foundation, a tax exempt, publicly supported Section 501(c)(3) of the Internal Revenue Code charity. In order for the IABWF to consider accepting your life insurance policy, there are various factors that must be assessed and complied with:
The IABWF aggregates and administers thousands of donated life insurance policies. Once a policy is accepted, it will pay all premiums. The IABWF will then distribute the death benefits after the payment of all the premiums and after expenses on a pro-rata basis to the charities selected by the donor of the policy and approved by the organization’s Board of Directors.
In essence, a charity selected by the consumer will receive a substantial portion of the death benefit of a life insurance policy that would not have paid a single dime if it were allowed to lapse. All of this is accomplished, plus the donor of the policy will be able to receive a valuable charitable deduction for income tax purposes based on the approved fair market value of the policy, under Section 170 (e) of the IRC.
The IABWF is able to help support numerous charities and their endeavors without any cost to the charities themselves while also allowing the consumer to obtain a valuable tax benefit. While I am generally reluctant to promote any single charity, when one is able to make something out of nothing, it deserves our attention.
This entry was co-authored by Anthony J. Enea, Esq. and Michael L. Meyers, CEP
Although formulating an estate and long term care plan is an important step towards financial security, many people fail to have even the most basic plan and advanced directives. One potential hurdle is a fear of putting together a poor plan. Having a basic understanding of these common mistakes can help reduce the risk of making some unfortunate errors. The following are examples of the most common errors made:
1. Failing to create an estate and elder law plan: Arguably the most common mistake is simply failing to create any estate and long term care plan. Without any written plan whatsoever, your intended wishes as to who will receive your estate and handle your affairs may go by the wayside. Without a Last Will and/or Trust, the laws governing intestate distribution (not your wishes) will control who will receive your estate and virtually anyone can apply to be the administrator of your estate.
Additionally, without a long term care plan you may end up utilizing all of your savings for your long term care needs and never be able to take advantage of any government program that will pay for said needs. The lack of an estate plan can also result in your estate not taking advantage of any available estate tax credits and exclusions. A variety of legal tools can help to better ensure that your loved ones or preferred charitable organizations benefit from your estate — not the IRS and/or New York State.
2. Not revisiting/updating your estate and long term care plan: An estate plan and long term care plan should be revisited with any major life event. This includes births, deaths, marriages and divorces. It is also wise to review an estate plan on a regular basis even without these major changes. For example, any changes in estate tax and income tax laws should be considered on a regular basis when reviewing one’s existing plan. Additionally, the rules for Medicaid eligibility should be consulted and considered.
3. Utilizing only a Last Will as your planning tool: A Will is just one of many documents that can aide in the transfer of assets. A trust may also be beneficial. Trusts allow the trustor, or owner of the assets, to avoid probate. Probate is the court process that a Will goes through before the assets are distributed. This process is public and can be arduous and costly. Trusts can be established to avoid this process and, depending on the language used to create the trust, can also take advantage of tax savings, protect assets from the cost of long term care, shelter assets from creditors and allow the owner to have more control over how the assets are used.
4. Neglecting beneficiary designations: Designations on life insurance policies, retirement plans and other beneficiary designations should also be updated with any major life event. Additionally, it is most important that named alternate beneficiaries are named for said assets. For example, if no alternate beneficiary is named, the default beneficiary would be your estate, which could result in creditors/Medicaid against said assets. These documents generally are not governed by a will, trust or divorce decree. As a result, an unintended beneficiary could remain a recipient.
These are a few of the more common mistakes that are made when putting together an estate and elder law plan. Those that are either in the initial stages of estate and/or elder law planning or looking to revise their plans are wise to seek the counsel of an experienced estate and elder law planning attorney. This lawyer will be able to discuss the various tools that can help you meet your goals and can better ensure a plan is tailored fit to meet your needs.
Having experienced firsthand for almost thirty years the ravages and cruelty inflicted by Alzheimer’s, senile dementia, Parkinson’s, ALS and MS upon individuals and their families, it can be particularly galling to learn that some have unnecessarily spent hundreds of thousands of dollars on their long-term care as a result of misconceptions and/or misinformation they relied upon.
The following are the most common and financially devastating misconceptions:
1. It’s Too Late To Do Anything: This misconception is particularly devastating in cases where an unmarried person is already in a nursing home for long-term care or will be shortly. While the individual and his or her family may know of the existence of the five year look back (period of disqualification for nursing home Medicaid) for assets gifted (with some exceptions), they may be unaware that they can engage in what is commonly referred to as a Medicaid crisis plan.
If properly constructed and implemented, a Medicaid crisis plan can protect approximately forty to fifty percent of the assets of the individual already admitted or being admitted to a nursing home for long-term care. Without its implementation, one would be required to spend down his or her (non IRA/retirement) savings until he or she has $14,850 or less in available resources. This can be financially disastrous for someone who has managed to save any money during their lifetime.
The “it’s too late to do anything” misconception is also pervasive among seniors who believe that they are too old to engage in elder law planning. Whether one is in his or her 70’s, 80’s or 90’s, it is always better to start the five year look back period running, and reducing the potential extent of one’s exposure to the cost of long-term care, than leave all of one’s savings exposed to the cost of care.
2. Transfer of Asset Rules Do Not Apply to Community Medicaid: One of the distinct advantages of engaging in Medicaid asset protection planning in New York is that while a non-exempt transfer of assets will create the five year look back period for nursing home Medicaid, it will not, under current law, have any impact on one’s eligibility for Medicaid home care (community Medicaid).
Thus, hypothetically one could transfer all of his or her savings and still be eligible for Medicaid home care the first of the month after the transfer assuming one needs assistance with activities of daily living and complies with the rules regarding one’s income (which can also be protected with a pooled community trust).
3. Assets Funded in a Revocable Living Trust are Not Protected for Medicaid Purposes: Regardless of how large the leather bound binder containing your Revocable Living Trust is, the assets used to fund said Revocable Living Trust are counted as available resources for Medicaid eligibility purposes, and Medicaid will be able to place a lien/claim against said assets/resources during your lifetime for the value of the services provided.
The only advantage for Medicaid planning purposes of a Revocable Living Trust occurs once the creators of the Trust are deceased. Upon their death, the trust becomes irrevocable and thus, no longer subject to the imposition of any claims or liens by Medicaid. Under New York law, Medicaid only has liens upon one’s probate assets (assets in one’s name alone upon his or her demise), thus, the assets in the Irrevocable Trust (previously Revocable) are excluded.
4. IRA/Retirement Assets are Not Countable and Available Resources for Medicaid Eligibility: All too often one who has IRA/retirement assets will believe that said assets will disqualify him or her from Medicaid eligibility. However, the IRA/retirement assets, irrespective of their amount, are not counted as an available resource for Medicaid eligibility purposes so long as the applicant for Medicaid is receiving their required minimum distribution. Thus, even if one has thousands or millions of dollars in IRA/retirement assets, he or she could be eligible for Medicaid nursing home or Medicaid home care, and the balance in the IRA/retirement account would not be considered an available resource for Medicaid eligibility purposes. However, the minimum required distribution would be considered as countable income to the applicant.
It is also important if one has an IRA/retirement account to ensure that said account has named beneficiaries/alternate beneficiaries, and that one’s estate is not named as a potential beneficiary or becomes the beneficiary by default. If one’s estate is the beneficiary of the IRA/retirement, then Medicaid would have a lien/claim against the amount paid to the estate for the value of the services it provided.
I am hopeful that the above will help resolve some of the common misconceptions about elder law planning that have resulted in the unnecessary loss of assets to many.
Taking the time to formulate an estate plan can often seem like a daunting process. This is particularly true for the single parent. The single parent is likely struggling to balance the demands of taking care of the children, home and working a job outside of the home. With these struggles the mere thought of adding anything to their to-do list may seem overwhelming. However, taking the time to develop an estate plan will likely ease some stress since the plan can help ensure that their children are provided for according to their wishes in the event of their demise.
Some of the most valuable steps to consider implementing are:
These are just four of the legal tools that can be used to help better ensure one’s children are protected. Other tools that can provide additional guidance are advance health care directives, which allow the creator to name an individual to make health care decisions on his or her behalf in the event of incapacity, and a power of attorney for financial affairs, allowing an individual to control bank accounts and other finances when you are unable to do so. It is also wise to review beneficiary designations on life insurance and retirement policies and update them if necessary.
Those who are putting together an estate plan are wise to seek the counsel of an experienced estate planning attorney. This attorney can review your situation and help guide you through the process, better ensuring a plan that is more likely to reflect your wishes.
Over the last decade, numerous non-attorney controlled entities have cropped up nationwide offering Medicaid and elder law planning services. Many of these entities have branched into these services from traditional home care and geriatric care management services, while others are newly created. The services offered by these providers are varied, often including the preparation and filing of Medicaid nursing home and home care applications, drafting of personal service contracts and qualified income trusts (in some states), as well as rendering advice regarding Medicaid eligibility and how to obtain benefits.
When a non-attorney provides the aforementioned services the consequences are, in many cases, financially disastrous. Although the preparation and filing of a Medicaid application by a non-attorney is not considered the unauthorized practice of law, doing so without weighing all relevant legal factors and issues can be quite dangerous. All too often the services provided by non-attorney entities have pushed the envelope towards the unauthorized practice of law, and have resulted in non-attorneys providing what is legal advice in areas which they lack any knowledge or training.
For example, when filing a Medicaid application for a spouse, there are a number of issues that a non-attorney should not, in my opinion, provide advice about, such as the potential financial liability resulting from a spouse executing a spousal refusal or the estate and income tax consequences resulting from the transfer and restructuring of assets. He or she would also not be qualified to advise on a client’s ability to engage in a Medicaid crisis plan.
On January 15, 2015, in response to a petition by The Florida Bar’s Elder Law Section, the Florida Supreme Court ruled that non-lawyers who engage in various Medicaid planning activities are engaging in the unauthorized practice of law. The three specific activities included in the ruling are:
Drafting of Personal Service Contracts: Personal service contracts are agreements generally by and between an individual (applicant for Medicaid) and a third party (generally a family member) delineating specific care services to be provided and the compensation thereof. They are generally utilized so that the transfer of funds for the purported care to be provided is not deemed an uncompensated transfer gift, which creates the sixty-month look back period for Medicaid nursing home eligibility.
Preparation and Execution of Qualified Income Trusts: Qualified Income Trusts are utilized in Florida when an applicant for Medicaid has income over the limits permitted to qualify for Medicaid long-term care services (including nursing home care). These trusts must contain specific terms and must be irrevocable. The funds remaining in a Qualified Income Trust will be turned over to the state upon the applicant’s death. The income deposited into these trusts allows the applicant to retain income outside of the trust so that he or she can qualify for services.
Rendering of Legal Advice: The Florida Supreme Court has ruled that the rendering of legal advice regarding the implementation of Florida law to obtain Medicaid benefits is an unauthorized practice of law. This includes advising an individual on the legal strategies available for spending down and restructuring assets and/or the need for a personal service contract or Qualified Income Trust.
Although the preparation by a non-lawyer of a Medicaid application does not constitute the unauthorized practice of law, it would be extremely difficult to do so without rendering some legal advice regarding the implementation of Florida law to obtain Medicaid benefits. In essence, all that may be permitted by the non-attorney is the ministerial act of completing and filing the application.
Additionally, the court opined that non-lawyer entities that claim to have relationships with a lawyer are engaging in the unauthorized practice of law unless the client has established an independent attorney-client relationship with the attorney, and that the payment for services is made directly to the attorney. Furthermore, the court required that the legal documents or Medicaid planning recommended to the client was determined by the attorney and not by a non-lawyer.
The advent of non-attorney document production mills presents an insidious danger to the general public who unknowingly are misguided by these untrained entities. I urge all those who seek the aforementioned services to do so only with a qualified attorney and I am hopeful that similar regulations will soon be implemented in New York.
When recommending the purchase of long-term care insurance (“LTCI”) to my clients, the most often heard response has historically been, “I don’t want to have to pay the premiums for the rest of my life.” For many 55 to 70 year olds, a potentially lengthy premium payment period is a psychological obstacle they are unable to overcome in making the decision to purchase LTCI.
According to the U.S. Department of Health and Human Services, nearly 70% of people turning age 65 will need long-term care at some point in their lives. While realistically there is no way of predicting who will need to enter a nursing home or need in home care, the reality is that many will. The fact that less than one third of Americans aged 50+ have begun planning for long-term care in any fashion is cause for concern.
LTCI is designed to cover a variety of long-term services such as personal and custodial care either at home or in a nursing home. The insurance company pays out a daily amount based on the size of the policy (extent of coverage). The cost of individual LTCI policies range greatly depending on a number of factors including age, health, scope and length of coverage, etc.
During the last five years, I’ve noticed that a number of seniors have become significantly more receptive to the purchase of LTCI specifically as part of a comprehensive elder law plan, which include making transfers of assets to a Medicaid Asset Protection Trust. The transfer of assets to said trust would effectively create a five-year “look back” period for Medicaid nursing home (not home care).
Once the “look back” period has been established, an ideal opportunity exists for the purchase of LTCI as protection from the cost of a nursing home during this five-year period. Ideally, the purchase of LTCI should coincide with Medicaid planning to provide coverage in the event that nursing home care is necessary during the “look back” period. Once the five years have elapsed (and the individual has effectively protected his or her home and/or other assets), the decision can be made whether or not to keep the policy.
For those still reluctant to purchase traditional LTCI, another option to consider is a hybrid policy combining life insurance with LTCI. Still relatively new, hybrid products were introduced in the market about five years ago and continue to gain in popularity. While individual policies can vary greatly in terms of cost, benefits and potential restrictions, the most attractive aspect remains the same – the purchaser receives some benefit from their premiums even if long-term care is never needed. In such an event, death benefits would be paid to the purchaser’s beneficiary.
In my experience, LTCI is best utilized as part of an overall asset protection plan rather than as a stand-alone long-term care option. It allows the individual the comfort of knowing that there is a light at the end of the tunnel as to the payment of policy premiums, rather than placing them in the difficult position of choosing to purchase a policy that may never be used (with the possibility that premiums will have to be paid for a potentially lengthy period of time). Depending on the needs and assets of the individual, hybrid insurance may also be a viable alternative to traditional LTCI. Either approach, however, will require a coordinated effort between your elder law attorney and financial advisor or insurance agent.
One question I am often asked is how to contest (or challenge) a last will & testament. While challenging a last will is not something to be done lightly, there are specific instances in which a will contest would be appropriate.
In order for a last will to be deemed valid and legally enforceable in New York State, it must first be admitted into probate by the Surrogate’s Court where the deceased resided. Once this process begins, individuals with a pecuniary interest (those who stand benefit monetarily from the last will) have the opportunity to formally challenge the document’s validity. This includes named beneficiaries in a previous will and/or heirs at law.
Once it has been established that an individual does have a pecuniary interest, he or she may formally challenge the last will by filing an objection with the Surrogate’s Court. In New York, the grounds for objecting to the admission of the last will & testament to probate are:
Lack of Testamentary Capacity – Testamentary capacity is a legal term used to describe a person as being of sound mind and memory when signing a will. To contest a will for lack of testamentary capacity, one must prove that the decedent was incapacitated due to senility, loss of memory, infirmity or insanity during the will’s execution and did not have a ‘lucid moment’ at the time of signing.
Due Execution – In order to be valid, a last will must be prepared following a number of strict technical rules. If the will was not duly executed by the decedent according to the laws of the state (“Due Execution”), the document can be rendered invalid.
Undue Influence and/or Fraud – If the last will was the product of undue influence and/or fraud practiced upon the decedent it may be challenged during probate. Illness or frailty may have left the decedent susceptible and, if it can be proven that the influencer took advantage of him or her and benefited, the last will could be invalidated. It should be noted that successfully proving undue influence is often a difficult matter. The court must rely on third party witnesses (health care providers, lawyers, family and caregivers) who knew the decedent well to make a decision.
A last will & testament is often among the most important legal documents that a person creates in his or her lifetime. For those considering a will contest, it is advisable to first consult an elder law attorney. The circumstances surrounding each case are unique. An attorney experienced in probate matters can best advise on how (or if) to proceed.
Irrevocable and Revocable Trusts are excellent estate and elder law planning tools that, depending on your objectives, can both be of significant value when used as part of your planning. Here we’ll take a closer look at the Irrevocable Trust and its most common uses and benefits.
Irrevocable Trust
There are various types of Irrevocable Trusts, each with differing purposes and objectives. For example, if you would like to gift assets during your lifetime for the benefit of your children and/or grandchildren, an Irrevocable Trust might be an appropriate vehicle. If you have a disabled child and/or grandchild an Irrevocable Special Needs Trust is often utilized. If you have significant life insurance assets and don’t want the assets to go outright to the beneficiary (and also don’t want the life insurance death benefit to be part of your taxable estate), an Irrevocable Life Insurance Trust is often utilized.
Perhaps the most common Irrevocable Trust utilized by seniors today is the Irrevocable Medicaid Asset Protection Trust (also referred to as an Irrevocable Income Only Trust). Unlike a Revocable Living Trust, this Irrevocable Trust cannot be amended and/or revoked by the creator, and neither the creator nor his or her spouse should be appointed as trustee of said trust.
The primary purpose of the Irrevocable Medicaid Asset Protection Trust is to shelter assets so that if one needs home care and/or nursing home care services in the future, the assets titled in the name of the trust are not counted as available resources for purposes of Medicaid eligibility and are not resources against which Medicaid has a claim and/or lien against for the value of the services they have provided.
The transfer of assets to the Irrevocable Trust will disqualify the creator of the trust and his or her spouse from eligibility for nursing home Medicaid (not Medicaid home care) for five years (known as “the look back period”). Once the five years have elapsed, however, the assets in the trust are no longer available resources for purposes of Medicaid eligibility and Medicaid cannot file a claim and/ or lien against the trust assets.
An Irrevocable Medicaid Asset Protection Trust is ideal for individuals wanting to protect their home and a portion of their life savings against the ravages of the cost of long-term care. With the average cost of a nursing home in the New York Metropolitan area being in excess of $15,000 per month, failing to do so can have dire consequences.
Unlike the Revocable Trust, an Irrevocable Trust does not allow the trustees to distribute the trust principal to or for the benefit of the creator(s). However, the trust creator(s) can receive any income generated by the trust assets and have the right to reside in and utilize any real property transferred to the trust during their lifetime. The trust creator will continue to be able to utilize any tax exemptions available such as STAR, Senior Citizen and Veterans, and can also take advantage of the personal residence exclusion for income tax purposes in the event the residence is sold.
My clients are always asking me which is better – an Irrevocable Trust or a Revocable Living Trust. Much to their dismay, the answer is that one is not better than the other. Irrevocable and Revocable Trusts are excellent estate and elder law planning tools that, depending on your objectives, can both be of significant value when used as part of your planning.
Revocable Living Trust
A Revocable Living Trust is a trust agreement that is amendable and revocable during one’s lifetime. The creator(s) of the trust can be both the creator and the sole trustee, though alternate trustees can be appointed. This gives him or her full, unfettered control over the assets transferred to the trust during his or her lifetime. He or she can also specify to whom (and in what amounts/percentages) the assets titled in the trust are to be distributed to upon his or her demise.
At death of the creator(s), the Revocable Trust becomes irrevocable, and thus, the assets titled in the name of the trust will not be subjected to probate. The named trustees of the trust will be able to make payments of the decedent’s bills, taxes and expenses and make distributions to the named beneficiaries of the trust without the court intervention that would be required with the probate of a Last Will & Testament. In essence, the Revocable Trust can accomplish all that is accomplished with the use of a Last Will while avoiding the necessity of probate.
To effectively utilize a Revocable Trust, it is absolutely essential that one’s assets, such as bank accounts, stocks, bonds and real property (house, condo, co-op), must be titled (re-titled) in the name of the trust. The trust does not control assets that are not titled in its name.
The Revocable Living Trust is not the vehicle to utilize if your goal is to protect assets from the cost of long-term care (in home care and/or nursing home), however. The assets titled in the name of the trust will be considered available resources for purposes of Medicaid eligibility, and Medicaid can impose a lien/claim against these assets.
The primary reason for the use of a Revocable Living Trust remains the avoidance of the probate process and the associated legal fees, costs and delays. It also has the added advantage of allowing the alternate named trustees to manage the trust assets in the event the creator becomes incapacitated or disabled.
In my next entry I will outline the various purposes and objectives for utilizing an Irrevocable Trust.
Westchester County Elder Law Blog 