Avoiding Financial Nightmares with Long Term Care
Transcription of an Educational Talk from Lori Somekh
So what if you’re walking across the street and a cyclist comes barreling around the corner and Bam knocks you down? You hit your head, you’re unconscious, you’re rushed to the hospital, and you need emergency surgery. The good news is that you survived. The bad news is you’re going to spend the next year in rehab relearning how to walk, how to talk, how to do everything.
Now, aside from dealing with your recovery, your family is going to have to figure out how to get this rehab paid. Now, does anybody think that the rehab will be covered by Medicare or private health care insurance? Have a show of hands? I can’t see the hands, but I see Gary shaking his head. Okay, typically, the first 20 days will be, and the next 80 days may be partially covered by partially.
I mean, 20% will be private pay. And just to put a number on that, the private pay portion for the next 80 days will be around $16 to $17,000 if you’re in New York. So after day 100, the rehab stay will cost you $16 to $20,000 a month, and that would be $30,000 a month if you’re on a ventilator. So the question now becomes, not only can your family access your money to pay your bills, can they get information from your financial institutions? Can they sign things on your behalf?
Bigger question is, does anyone have the authority to take assets out of your name? Like if your spouse if you and your spouse own your home jointly, can your spouse get your name off the house to protect it from these enormous bills that you’re about to incur? The answer is, unless you’ve done some serious long-term care planning, the answer is no for the wrong slide. So okay, I’m Laurie Some, and I’m an elder law attorney, and this story is an actual case in my office. We help people put care in place to protect as much of their life savings as possible when a health crisis hits.
What I’m going to talk about today is how to put your legal house in order now so that if a crisis does happen, you’ll be in a position to protect your whole life savings, not just as much as possible. So I’m going to talk about estate planning in the context of long term care planning. So for a little background, let me just frame what estate planning used to be about. We used to be worried about passing our property down to our kids without paying a lot of estate tax to the government.
And this is because there was a hefty estate tax that had to get paid if someone died within estate worth over $600,000, which isn’t at all uncommon in New York.
Anyway. However, the federal estate tax exemption is now over $11 million, and the New York estate exemption is around $6 million. Now, only pretty wealthy people are concerned about estate tax at this moment. So what families worry about now that requires planning. Now, what scares us is long term care.
Now, what that means is rehab or nursing home. And they’re synonymous in terms of how they get paid or also paying for round the clock AIDS in the house. If we get sick and we’re not necessarily wanting to go into a nursing home, this is arguably the biggest threat to our life savings. Now, if this seems like it might be a remote concern to you, the numbers might be eye opening. Statistically, one out of two people alive today will experience some period of incapacity before we die.
So that means the odds are 50, 50. Now, I don’t know about you, but I don’t like those odds. So there’s a one in two chance that we might not die in our sleep peacefully or instantly from a heart attack. Okay, so what do I mean by incapacity? Like Dr.
David just spoke about some of the main causes of incapacity that ends up costing a lot of money or dementia. Alzheimer’s, stroke falls like what happened to my client in the earlier scenario. Even if we don’t get run down by a cyclist, seniors tend to fall a lot. So what issues does this raise? Initially, we want to answer two main questions.
Okay, question one, who will make health care and treatment decisions for me if I can’t make them? And question two, who will take care of my money and my life savings if I can’t manage my own affairs? So if something happens to you and you can’t do your own bidding, there are only two options. Either you’ve decided in advance by putting your basic written instructions in place, or you haven’t. And the court decides in the context of a guardianship proceeding at great expense to you.
So what do I mean by basic written instructions? Every adult over 18 needs to have two things in place. Okay. First is the health care proxy. This says, if I can’t make my own decisions, my daughter Mary is going to make them for me.
Okay, you may say in New York, we have the Family Care Act. So the doctors will just look to my family. Right? Well, yes, but let’s say I don’t have a spouse and I just have my two kids, and a procedure needs to be consented to. My daughter says yes, and my son says no.
What’s the hospital going to have to do? They have to waste precious time of my life going to court and getting the court to decide. And some judge who doesn’t even know me will be deciding my fate. So that’s a health care proxy. Everyone should have one.
The other basic written instruction is the durable power of attorney. Hey, Laurie, can you hear me? I hear you make sure it’s important on the health care proxy that people are not misled into thinking they can have more than one agent because of that. Well, we always tell people that when they say, can I appoint my two kids, you want to .1 and point another one as a successor. So in other words, if they can’t reach Mary, then they call Bob.
We always want a pecking order for that very reason so that we don’t end up having two agents who disagree. So thank you for that. Whoever that was, thank you for it.
The next important document that everybody needs to have in place, in my humble opinion, is the durable power of attorney. Now, your regular garden variety power of attorney appoints an agent to do basic stuff for you as long as you’re competent and able to direct that agent. Now, it’s not going to help you. In our earlier example, you’re going to want to have a durable power of attorney, and the durable means that it remains in effect, even if you lose your capacity. Now, let’s say you have a durable power of attorney that will let your agent do basic things like pay your bills, like sign off on things on your behalf.
So question, if you’ve appointed your wife as the agent under the durable power of attorney, does that allow her to take the house that you own jointly out of your name? Well, some people might be surprised to find out that no, it does not. Okay, what we need in order for someone to take the house or anything else out of our name is that we need something called the statutory gift rider, which is a rider to the power of attorney. Now, most attorneys don’t do this rider.
This is really something that we do primarily in the elder law context, because we’re doing planning with long term care in mind.
So we’re anticipating that we might need what we might need to do if something happens to you, and we want to protect your assets and maybe get Medicaid to pay your medical bills. So while an ordinary power of attorney doesn’t necessarily contemplate taking stuff away from you, a comprehensive power of attorney that we do in an elder law practice contemplates exactly that. So in the earlier scenario, the knock down, if you don’t have one of these things, your family will have to either use your assets to pay the nursing home until they are depleted or go to court and have a Guardian appointed for you.
And then assuming that the quarter points of Guardian it may or may not be a family member, then they’re going to have to ask the court for permission to do Medicaid planning so they can protect some of your assets. And that’s a very expensive proceeding.
So before I really touch very briefly on Medicaid, I’ll touch on a couple more basic estate planning tools that would be will and trust. Now I’ll start with the old one will. What’s the difference between dying with a will and dying without a will? So the only difference is if you die with a will, you get to decide what you get to decide who gets what if you die without a will, the state intestacy statute decides who gets what. Now almost everyone asks me this question.
When they bring a will in to me. After someone passes away, they’ll say, Why do I have to go to probate? Dad had a will. So will does not avoid probate. With a will, we’re going to have to go into court.
We’re going to have to notify all of your distributes or or your airs.
And we’re going to have to have what in New York is a pretty long process before anyone could get to any of your assets. Will also doesn’t protect your assets. If you need to go into a nursing home, your executor cannot handle your assets while you’re alive. And a will does not hasten getting your assets to your ears after you die. So if you want to accomplish those things that I just mentioned, you’re not looking for a will.
You’re really looking for a trust. Now, we typically work with two types of trust, revocable and irrevocable. And regardless of which type, they all have certain things in common. You’re going to avoid probate. Let’s say you’re single, no kids, no living parents, no siblings.
All you have is twelve first cousins, and you just have a will. Now you’re only close with one cousin, some of them you don’t even know. So you leave everything to the one cousin you die. Your executor has to now go chase down all of those twelve cousins, and each one of those cousins has to either wave and consent to your will being probated, or they have to be given a citation. And they’re going to have a date where they’re allowed to come into court and object to your will.
So how often do errors that didn’t know or care about you come in and object to your will? Anyone?
Okay. That would be all the time, all the time. So instead of a will, you do a trust. Okay. When you have your property titled into a trust, when you die, there’s no court proceeding.
All of those cousins don’t need to be tracked down. They don’t need to know your business. Your trustee will come into the lawyers office for guidance. We may have to do a deed or write some letters of instruction to the financial institutions in order to get the assets from you to your beneficiaries. But guess who’s not involved, who’s not involved as the court and the cousins.
So a trust doubles as a will, but it does so much more. So the first type of trust we use for people who are a little bit younger is a revocable living trust. Now with a revocable living trust, you can be your own trustee. You have 100% control. You can do whatever you want with the assets.
They’re going to be titled into the trust, but you’re going to be the one authorized to handle them. And you’re also going to avoid probate. The one thing it does not do is it does not protect you when it comes to long term care expenses. What you might want to look at with long term care in mind is a Medicaid asset protection trust. That’s a type of irrevocable trust.
Now, it does the same thing as the Revocable trust does, but it also does another thing. It provides that your assets have enough distance from you that they’re considered by Medicaid and by the nursing home to be out of your name. Now, in exchange for this benefit, they’re a little bit more restrictive. You can’t be your own trustee and you can’t get assets paid directly to you. But we usually appoint, like your son or your daughter or your brother or a trusted friend as the trustee.
And that person really has to cooperate with you. Like if your house is in this trust and you want to sell it, that person needs to do that. Otherwise, you are going to fire that trustee and appoint a new one. So you have a lot of control just by virtue of the fact that you have control over the trustee. And if you need to get at the assets, they cannot be paid over to you directly.
But there are ways of getting assets to pay for things that you need. It’s not something we want to do on a regular basis, but there are ways. So it’s a very flexible kind of a trust, so you can kind of have your cake and eat it, too. Medicaid will consider those assets out of your name when it comes time to apply for nursing home.
So since we’re doing this planning with long term care in mind, let’s talk about the government program that we hope will pay for the care one day if we need it. And that is Medicaid. Now, to qualify for Medicaid, you have to be broke, and you can’t just get broke today and apply for Medicaid tomorrow. Okay. Everyone might have heard of the five-year rule when it comes to Medicaid.
So what we want to do is do this planning five years before we need to go into a rehab or a nursing home. But how do we know when that is? You might ask, well, we don’t. We have to go with the probabilities. The older we get, the closer it is.
Now, if I’m in my 60, should I do this type of trust now, my feeling is, yes. Some people feel they should wait until they’re a little older than that. Are they wrong? Unless we’re God or we have a Crystal ball? I can’t really answer that question.
We’re not all the same. We’re not all in the same state of health, we have different levels of risk aversion. It really comes down to a personal choice and a personal comfort level. Now, I’m not going to get into the nitty gritty details of how this all works, but I’ll just say that when someone goes into a rehab or a nursing home again, same thing and applies for Medicaid to pay the very large bills. Medicaid is going to look back five years in time and they’re going to say, has this person transferred any assets to anyone their kids trust, the milkman, anyone in the last five years and not received value for it?
And if the answer is yes, they are going to give a penalty period of time during which they will not pay for your nursing home. And the calculation is based on the amount of the transfer. So they’re going to assess a penalty period of Yay many months. And it could be it could be really a lot of months. So that’s the fear.
So we want to plan ahead because what we have to lose if we don’t maybe our entire life savings. Okay. Like the fellow who got hit by the bicycle, he wasn’t old, but he still is in the same position as someone who’s 80 and is concerned about having a stroke. So let me flip to the next slide. There’s another type of Medicaid that I’ll mention briefly but not really get into.
Medicaid also pays for home health aides, even around the clock, even for the rest of your life. Now, since the inception of the Medicaid program, New York, the greatest place in the US has had no look back period for home care. Now, what that means is you could dump your entire life savings into an irrevocable trust today, and then next month you could get on Medicaid for round the clock AIDS for the rest of your life. Now that’s changing as we speak. A two and a half month.
Excuse me, two and a half year look back period has just been imposed on home care. Medicaid. Okay, the implementation we’re we have a weird little period window of opportunity right now, because although the new law is in effect, it’s not going to be implemented until April 1. So what that means and I’ll just give you a brief little synopsis of what that means. That means if you or someone you know needs home care right now, there is still a little opportunity for that person to transfer assets into a trust and immediately apply for home care as long as we get this application in before April 1.
So the reason for the little weird window of opportunity has to do with COVID and what the state is and isn’t allowed to implement during COVID. But if if that’s you I would say call me immediately or if you know someone in that position, call immediately. If we act fast enough, we may be able to really, really help that person. So that’s a little summary of what you need to think about to make sure you have your legal house in order. We want to have the basics in place.
We want to have the health care proxy. We want to have the power of attorney. You probably want a trust rather than a will. And if you’d like to have a free consultation to discuss your specific situation, then give my office a call. The number is on the slide, and I want to thank you all for your attention.\
The easiest way to get in touch with Lori is by calling 718-740-3300.