FAQs (Frequently Asked Questions):
My accountant tells me I can give away $10,000 every year. Is that true?
Well, actually, your accountant is a bit out of date; the new number is $14,000 per year. The number has been indexed for inflation, and every few years, it goes up by a thousand dollars. You have to comply with both the IRS gifting rules, which say you can give $14,000 away every year to any person, and you can make as many as those gifts as you want. But Medicaid doesn’t care about the IRS rules; Medicaid will make you comply with the Medicaid transfer rules, which is why they look back for five years and divide the total amount of gifts by $285.
How much will Medicaid let me keep?
When you make the application for Medicaid, your resources must be less than $2,000 on the first day of the month that you make the application. Once you are on the program, you will be contributing most of your income to pay for the cost of your care, and you will get a personal needs allowance that in Washington State is approximately $60 per month. If you are married, your spouse may be able to keep some additional liquid resources. And the applicant can have one home of limited value, if they’re single, a house of any value, if married, a car, prepaid burial, and personal furnishings.
I have a will, so that’s all I need, right?
No. A will is a great tool for setting forth your wishes. You get to name who you want to be in charge of your estate. That person is called a personal representative. In addition, you get to specify who will receive your estate when you pass. But a will does not provide for a lifetime decision-maker, a will may not address non-probate assets like IRA, or life insurance policies that have death beneficiary designations. If you own those types of assets, it would be important to coordinate them with your will.
I downloaded a power of attorney and will from the internet. Isn’t that really all I need?
Downloaded powers of attorney are one of the biggest sources of frustration and hardship for our clients and their adult children. Those one to two page documents often don’t address the necessary powers that are necessary to conduct critical business for them. And families often don’t understand the problems with the documents until it’s too late. For example, we had someone come in a couple of weeks ago, who had a downloaded power of attorney done several years ago, and needed to do planning to pay for that spouse’s long-term care. Unfortunately, the power of attorney did not allow that planning. So, we had to utilize an expensive court proceeding to get the necessary authority. That cost the clients additional money, and there was a delay in the process. As to a will, oftentimes, people will use these simple wills from online, but they won’t be read until after testator’s death. Then we discover that the testator’s intent was not met, and it’s too late. That can’t be fixed. So it’s really important to see a qualified Elder Law Attorney to help you assist in planning your critical estate plan.
But a will avoids probate, right?
No, nothing could be further from the truth. It’s going to depend on what you own at that, whether or not your estate is subject to probate. So if you were to pass away, and came into our offices, we would determine everything you owned at your death, and put it into two columns, either the probate column or the non-probate column. So let’s talk about non-probate assets first. There are things like IRAs, life insurance, annuities that actually help complete the death beneficiary designations on them; those designations control who receives them at death. But anything that you passed away owning, like real estate, or a bank… or an investment account that’s just in your name, that’s a probate asset. And so whether or not, a formal probate, or a small office estate affidavit is necessary, depend on the total value of your estate and any issues that need to be resolved at your death. There are terrific tools to avoid probate; one of the most popular is the revocable living trust. This contractual document can be funded to own all of your probate assets so that a probate can be avoided. Our clients really like that type of trust.
How do Medicaid transfer rules work?
Each state has its own unique set of rules. So it’s really important to remember that the rules of every state are different and, all the states rules have changed overtime. This has been one of the most challenging areas of my practice since 1983. In Washington State, the state looks back to the five years immediately preceding the date of your application. Each transfer or gift that you made is examined to see if you got fair market value for it. If you did not receive fair market value for it, then the state adds up all the assets that you gave away, and divides it by the then current average cost of care. So, let’s do an example. In Washington today, the average cost of care is $285 per day. So if you gave away $28,500 in total in the last five years, Washington would divide your gift of $28,500 by the $285 divisor and come up with a 100 day penalty period. Now the 100 day penalty period does not start until you have submitted an application you are medically needy and financially eligible. Then the state would impose a 3-month penalty period, meaning they would not pay for your care during that time period.
Is it true that Medicaid can take my house?
Medicaid does not actually take the house, but Medicaid has the right to a lien against your house. What this means is that you can go on Medicaid owning a house, but at your death, Medicaid is entitled to get paid back for the amount of care. If you have a spouse, the lien is postponed until the spouse’s death. In Washington State, every now and then, the estate will send a letter to the surviving spouse after the death of the Medicaid recipient, and request that they get paid back now. That is not proper. If you get one of those letters, you should seek the guidance of an Elder Law Attorney. The estate is not entitled to be paid back until your death, and only if you own the house at the time of your death.
I always thought Medicare would pay for my healthcare needs.
That comment is what my staff hears most often. It is a very common assumption. No, Medicare is really only for a short term stay in a rehab facility. So I like to think of Medicare as short term care and Medicaid as the aid to pay for long term care if your resources are not sufficient.
What are the differences between Medicare and Medicaid?
Comparing Medicare and Medicaid is like comparing apples and oranges. Medicare is a program that was enacted in 1965 to help seniors pay for health care needs. At that time, the average life expectancy of seniors is between 66 and 72, so folks worked until 65, retired, and then passed within a few years. Today, people are living much longer and the actual life expectancies are between mid-80s and some people are living as long as a hundred or longer. Medicare was also created prior to the prevalence of Alzheimer’s and Parkinson’s. Medicaid is the program that provides aid for seniors to pay for long term care.
What are the biggest threats to my retirement savings?
Well, I think that’s the cost of long-term care; costs are really rising. In Washington State, the average cost of care is over $8,000 a month. And just last week, I met with a client in an assisted living facility whose monthly bill was $9,000. To prepare for those costs, we need to figure out how we can best utilize our resources, empower ourselves and figure out what planning we need to do so that we can be prepared in the event that we have a long-term care need.
Shouldn’t I just put my house and bank accounts in my children’s names?
Oh, my! We often hear bankers recommending this, and that may be helpful in terms of paying your bills, but generally it won’t give you the other assistance you may need. For example, a joint owner of a bank account can’t contact an insurance company, cannot access your IRA, cannot make your healthcare decisions, and the list goes on and on. In addition, adding a child’s name to a bank account or a house can put your assets at risk to your child’s creditors. Or even worse, what if your child has a disability, and is in need of needs-based assistance? What if your child files bankruptcy? Your child’s creditors may try to attach your resources. I’ve got a list that continues on and other considerations that are important. Generally, as clients consider all of those issues, we find better planning options for them than risking their life savings and home, by simply adding the child’s name to it.
Why should I do estate planning?
There are hundreds of reasons why people do estate planning. The most common are somebody who wants to provide for their spouse, someone who wants to make things the easiest possible for their children or someone who has a unique plan that wants to happen. When you come in to our offices, one of the discussions we always have with clients is, “Well, what happens if you don’t do anything at all?” And most of the time, our clients are surprised by that answer, and in fact that helps motivate them to do an estate plan.
When should I do estate planning?
Well, we need to do our estate planning before it’s too late. Sometimes, that can be hard to figure out. In our offices, we have crystal balls in each of our conference room tables that remind us we don’t know the future is going to provide. So, if you want to keep the court out of your life, both during your lifetime and in your death, then you want to make sure you plan in advance. If you want to protect the assets from the cost of long-term care, then you probably will find that you have the best options if you plan five years in advance.
I’m pretty sure I will never need long-term care because my spouse and children have promised they will keep me at home, just like I did with Grandma.
Oh my, but times have changed. Thirty or more years ago, when you helped grandma, most likely she needed care for three weeks, maybe three months. Today, illnesses last much longer. Often we see people needing care for three years, six years, or even longer. The statistics today are that 70% of individuals already age of 65 will need some sort of long-term care, whether it’s in a facility or at home. The statistics also are shocking on how many persons actually have Alzheimer’s disease. Every 45 seconds in the US, someone has a stroke. One out of 9 persons over the age of 65 has Alzheimer’s and that number increases to 33% of those over 85 years old. And 1 million Americans are diagnosed annually with Parkinson’s disease. These chronic diseases are the most common reason why people need long-term care, but people who are frail, diabetic, or have other illnesses that caused them to need assistance with the activities of daily living, also can need long-term care.
If the cost of long term care is too high, what can I do?
We recommend pre-planning so you can take advantage of legal tools that are available and so that you can best empower yourself in the case of the long term care need. Some of the legal tools that we use are testamentary special needs trusts, house protector trusts to protect the family home, powerful powers of attorney to avoid the need for guardianship. Generally, the earlier we start planning, the more options you’ll find that you have.
When should I do pre-planning for long-term care?
You want to do pre-planning for long term care before it’s too late. If you have a diagnosis like Alzheimer’s or Parkinson’s, you want to make sure you get in as soon as possible. If you don’t have any kind of chronic care or diagnoses, then now is the time. It’s always important not to let one of the diagnoses, like Alzheimer’s, dementia, or Parkinson’s creep up on you. Over time, your legal capacity to sign and execute a plan can change. Last week, I met with a woman whose husband was diagnosed with Alzheimer’s seven years ago. She kept meaning to come in, but didn’t come in until last week. Unfortunately, her spouse does not have the ability to legally participate, so we’re going to have to go to court to pursue her planning options through first getting a guardianship. Then it would be up to the court on whether or not we can plan for her. I’m very optimistic we’ll be able to get the court to approve her planning options, but that’s always an extra wrinkle and, most importantly to them, it takes additional time and costs additional money. So starting soon is always a good idea.