Success Story Of The Month: It’s More Than Take 2 Aspirins And Call Me In The Morning – Use Of Estate Planning And Elder Law To Solve A Planning Headache

Success Story Of The Month: It’s More Than Take 2 Aspirins And Call Me In The Morning – Use Of Estate Planning And Elder Law To Solve A Planning Headache

Is your head ready to explode with the myriad of legal issues that can spring from your estate planning problems? The case below illustrates the problems and solutions to eliminating the pain and meet the goals of a client.

FACTS: 54-year-old disabled, divorced man (“Recipient”) needs skilled nursing care due to sudden medical issues and is receiving Medicaid to help pay for care as he has no long-term care insurance and inadequate income and resources. Recipient has 3 adult children, but he is estranged from one of them.

Recipient has no will. He has named his father as his agent under his power of attorney and his sister as an alternate to handle financial transactions during his life. Recipient does not desire any of his children to take care of him or his assets. After Recipient’s divorce, his father paid off the mortgage on his $400,000 home (which is the Recipient’s only asset) and has continued to pay all of his son’s bills in connection with the home (taxes, insurance, maintenance and utilities) during his institutionalization, but he can no longer afford to do so. The Recipient’s nephew would like to buy the home although it is not desired that Medicaid be lost. One of Recipient’s goals is that his father (or his father’s estate should he predecease Recipient) be repaid all that he has advanced.

PROBLEM NO. 1 – Sale of the home would result in the loss of the government helping pay for Recipient’s care costs.

SOLUTION: You don’t need to sell the home since the homestead is a non-countable resource for Medicaid as long as there is an intent to return home. If the homestead is sold, its treatment as a non-countable resource is lost as cash counts as a resource. Although there is nothing wrong with selling your assets to pay for your care, the Recipient wanted to make sure his father (or his estate) is reimbursed for everything he advanced. He also wanted to leave something for 2 of his children.

PROBLEM NO. 2 – Father can’t afford the upkeep on both the Recipient’s home as well as his own.

SOLUTION: Recipient’s nephew, who wanted to buy the home, can move into the home and pay the bills of the home (taxes, insurance, maintenance, utilities, etc.) as a form of rent since Recipient’s father can no longer afford to do so. Although the nephew won’t own the home initially, his rent would be far less than market value. Since the home is still the homestead owned by Recipient, the property taxes are lower since Recipient has disability and homestead exemptions.

PROBLEM NO. 3 – Rental income paid to the Recipient would be considered income to the Recipient which would then be paid to the nursing home as a co-payment as his share of the cost of care.

SOLUTION: The nephew would sign a caretaker lease which would state that he would pay taxes directly to the taxing authorities, insurance directly to the home insurance company and that nephew would maintain the property in good repair. Since no payments are made to the Recipient, it would fail to count as income subject to co-payment. As a result, the government would pay more. Furthermore, there would be no need to create a qualified income trust (Medicaid has an income cap if an applicant has gross income over $2742 per month) since rent is not paid directly to the Recipient.

PROBLEM NO. 4 – The nephew wants to buy the home.

SOLUTION: The caretaker lease would give the nephew the option to purchase the home at the death of Recipient. The homestead would continue to not count as a resource for the Recipient. As mentioned above, sale of the home while the Recipient is on Medicaid would result in a loss of eligibility if the proceeds remained as cash.

PROBLEM NO. 5 – The homestead is subject to reimbursement to repay the government for its expenses advanced if the Medicaid recipient dies and the property passes by intestacy (without a will) or by will.

SOLUTION: Recipient can sign an enhanced life estate (Ladybird) deed or a transfer on death deed. Since the Recipient retains control of the home during his life, it would not result in a penalty under Medicaid’s 5-year lookback period. Furthermore, since the homestead passes by deed at death (not by will or intestacy), it avoids a successful claim for Medicaid estate recovery under Texas laws (Texas is one of only 3 states that permits this type of protection). It should also be mentioned that a homestead owned by a revocable living trust during the life of the Recipient would result in the home being a countable resource resulting in a loss of eligibility.

PROBLEM NO. 6 – How will Recipient’s father or his father’s estate get repaid while also not having Recipient’s estranged child benefit?

SOLUTION: It is not unusual for a Medicaid recipient to want their children to be entitled to the home at death. However, Recipient wanted his father (or his estate should his father predecease him) to be repaid for all that he advanced. Furthermore, Recipient didn’t want his estranged child to be a beneficiary of his estate. At the present time, Recipient has no will. As a result, his children would be his heirs (including his estranged child) after reimbursement to the government. The solution is that the Recipient will prepare a revocable living trust (RLT) which would be the grantee of a Ladybird deed (since an enhanced life estate deed avoids a successful claim for Medicaid estate recovery under present Texas law since the home doesn’t pass by will or intestacy) at the death of the Recipient. The RLT would mention the option to purchase the homestead by the nephew and the terms of the purchase. After the nephew purchases the property from the trust, then dad (or his estate) would be repaid and the balance would go to the two children with whom Recipient was not estranged.

PROBLEM NO. 7 – What if one of Recipient’s children seeks guardianship over Recipient to supersede the power of attorney and thwart nephew’s option to purchase the homestead?

SOLUTION: Recipient would sign a document entitled “Declaration of Guardian in the Event of Later Incompetence or Need”. Since there is no spouse of Recipient, adult children would be considered a next-of-kin that the court would likely consider as a guardian. However, the court is supposed to follow the wishes of a proposed ward if this document is signed (assuming mental capacity and no undue influence). The court would also review both the financial and medical powers of attorney. Recipient would sign the document before 2 disinterested witnesses and a notary public. If there was a question as to capacity, a doctor who specializes in the mind would sign an affidavit as to capacity at the time of the signing of the documents by the Recipient. Steps also should be taken to reduce the risk of undue influence (i.e., neither father nor sister should be present at the signing, etc.).

This case illustrates the connection between elder law and estate planning to solve the problems and meet the goals of the client.

If interested in learning more about this article or other estate planning, Medicaid and public benefits planning, probate, etc., attend one of our free upcoming Estate Planning Essentials workshops by clicking here or calling 214-720-0102. We make it simple to attend and it is without obligation.

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