How To Avoid Four Common Estate and Elder Law Planning Mistakes

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.

The Most Common and Financially Disastrous Misconceptions About Elder Law Planning

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.