What You Can Do To Ensure Your Affairs Are In Order
Because the population is aging, it is imperative basic legal planning be understood and utilized to assist not only yourself, but also loved ones. This includes planning for you, your parents, your relatives, as well as children or others who may have special needs or who may need planning to qualify for certain types of governmental entitlements, such as Medicaid, to pay for long term care. The following is a general discussion of topics and issues which should be considered and utilized:
1. BASIC DOCUMENTS
A. Lifetime Documents
(I) Durable Power of Attorney
A durable power of attorney is a document which allows a person to name another to act for them. The “durable” nature of the document means that so long as certain legal formalities are satisfied, even if a person becomes “incapacitated” as defined by law, the person named in the power can still act for a person when they are unable to act for themselves.
Durable powers should have, at a minimum, language including the right for a person to assist with the sale and transfer of real estate, banks or financial institutions, cashing and depositing checks or other funds or moneys, assisting in making any gifts or distributions of a person’s assets and authorizing the filing of tax returns and to deal with the INTERNAL REVENUE SERVICE and the government for applying to obtain government entitlements, such as Medicaid.
(ii) Health Care Surrogate Designation
Florida law allows for powers of attorney to include the right for a person to make decisions regarding a person’s healthcare. This decision making ability should be included not only in a durable power of attorney, but also in another document. This document is referred to as a health care surrogate designation (“Health Care Surrogate”). The Health Care Surrogate is given the right to make medical decisions. This is very important when dealing with someone who is not married or when a spouse is not available to provide consent. This form should be given to a primary care physician and become part of your medical file, especially if someone is hospitalized.
(iii) Living Will
This is a document which allows a person, when they are on their “death bed” to state they do not wish to have life prolonging procedures (i.e., tubes and ventilators) utilized when death is imminent. This is a right to die document. This document permits someone to make decisions about terminating certain types of medical procedures.
B. Wills & Trusts
(i) Will
A will is a document which permits the maker to designate where his property should go upon his death. When a person dies owning assets in his own name, the property will pass according to the terms of the person’s will and through a process known as, “probate.” Probate requires court intervention.
Florida law establishes by statute a probate fee. This fee is approximately 3% of the probate estate. In other words, the use of a will could cause the necessity of a probate. Probate in Florida is not necessarily bad; however, it can be time consuming and because of the statutory fee, it can be expensive. For example, a person with an estate of $300,000 (this is easily obtainable by merely having a house and some minimal savings), would have a probate fee of in excess of $9,000.00. Wills can be classified as simple or complicated.
(ii) Trusts
A trust can be either revocable or irrevocable. Most trusts are revocable. This means they can be amended or changed at any time during a person’s life, just like a will. The person who creates a trust is known as the, “ Settlor.” The person who assists the Settlor of the trust in managing their property is known as a, “Trustee.” TYPICALLY, THE SETTLOR AND THE TRUSTEE ARE THE SAME PERSON.
The beneficiaries of a trust (during the Settlor’s life the Settlor is usually the beneficiary, too) are those who are entitled to the benefits and property of a trust. By merely having a revocable trust, you do not incur additional expense or income tax liability. You file the same 1040 tax return that you file as you would without a trust.
The primary benefits of a trust are:
1. Avoidance of probate and the time and expense involved in the procedure;
2. Privacy - what goes on with a trust is between family and is not made public, as the trust is not typically filed with the Court;
3. Management - when a person becomes incapacitated or otherwise does not feel he can manage or maintain his assets, he can choose a successor trustee to watch over them, thereby making sure his assets are not depleted or otherwise wasted;
4. Guardianships - a guardianship is a proceeding which is necessary when a person does not have a trust or a durable power of attorney and they become “incapacitated,” as defined by law. This procedure can cost thousands of dollars to implement and require annual accountings and other documentation to be placed in the public records.
Guardianships should be unnecessary when trusts are involved because if a person becomes incapacitated, the trust allows for a successor trustee to take over the affairs of the trust.
MEDICAID - Paying for Long-Term Care
A. Terminology
The following are the basic terms you should be aware of whenever dealing with Medicaid issues:
1. DCF - The Florida Department of Children & Families. This is the state organization where you apply for Medicaid benefits.
2. Institutionalized spouse - This is a term used for the applicant, the person needing nursing home or long term care and Medicaid benefits.
3. Community spouse - This is the person who is married to an applicant for Medicaid benefits who does not require nursing or long term home care.
4. Medicaid ICP Program - This is the state program which provides benefits for nursing home and long term care in an institutionalized setting.
B. What is Medicaid
Medicaid is a governmental entitlement program under the umbrella of the Social Security Administration. The states administer the program. It is the only program paying for nursing home and long term care. Medicaid is a needs based entitlement. If your “countable” resources exceed a certain amount, then you cannot obtain Medicaid benefits. On the other hand, if your “countable” resources do not exceed a certain amount, you may obtain Medicaid benefits.
C. Qualification Rules
In Florida, the general rule is the Applicant (Institutionalized Spouse) applying for Medicaid ICP (Institutionalized Care Program ) (i.e., nursing home care) cannot have more than $2,000 in “countable” assets or resources. In addition, Florida is one of a minority of states that imposes an income cap on an Applicant. This means that during calendar year 2006 any person applying for Medicaid cannot have more than $1809 in gross monthly income to qualify for Medicaid. However, be aware that the income cap can be dealt with, and benefits obtained, by utilizing an irrevocable Qualified Income-only Trust (“QIT”). In addition, if an Applicant is married, their spouse (known as the Community Spouse) cannot have “countable” resources exceeding $100,000 in 2007 at the time of application. This is known as the CSRA (Community Spouse Resource Allowance). There is no income cap imposed on the Community Spouse; this means the Applicant’s spouse may receive as much income as he or she can without causing the Applicant to lose benefits. If both the husband and wife are applying jointly for Medicaid benefits, then together they cannot have more than $3,000 in countable assets and their joint monthly income cannot exceed $3,618; provided, however, if the income cap is exceeded, a QIT can solve this problem.
D. Planning Techniques
There are many ways to plan for Medicaid eligibility. For example, basic planning for a married couple where one spouse requires nursing home care could allow for the Applicant to transfer all of their assets to the other spouse (the Community Spouse), as transfers between spouses do not impose any penalty.1 However, be aware that any transfers that are made as gifts to anyone other than a spouse, if over $3,300 in any month, will impose a period of ineligibility (i.e., a penalty period).2 A period of ineligibility is the number of months a person would be prohibited from applying for Medicaid, even if they would otherwise be eligible. The penalty “look back” period is 60 months (5 years). This period of ineligibility was established because of the state not wanting individuals to obtain Medicaid benefits by gratuitously transferring their assets to make themselves “poor” so they can then obtain Medicaid benefits.
Another basic planning technique for Medicaid planning and qualification is called “spend down.” This means an Applicant or their spouse can take assets (i.e., money) which would be countable and use them for the purpose of making them exempt assets. For example, a Medicaid Applicant can take assets and put them into their primary residence (i.e., homestead) by improving the home. The home is exempt and therefore any moneys put into the home are considered exempt. You can also purchase prepaid irrevocable burial plans, a car, certain annuities, pay relatives to care for you under a Personal Services Contract, and other types of investments for the Medicaid Applicant or spouse. This spending down of assets provides not only a benefit for the Medicaid Applicant and spouse, but also allows a person to apply for Medicaid quicker.
IV CONCLUSION
Please feel free to contact an attorney who practices in the areas of elder law and estate planning. They can be a great resource and assist with what alternatives and techniques are available for anyone having to plan not only someone’s estate, but also having to deal with issues involving those of us who are growing older and need assistance. If you have any questions regarding this outline or any of the material I have discussed, you can contact me directly at 904-268-7227. I can also be e-mailed at rmorgan@flfirm.com.
ROBERT M. MORGAN - BIOGRAPHY
Robert M. Morgan - born Richmond, Virginia, 1959. Partner in Charge of the Estate Planning and Elder Law Department of Ford, Bowlus, Duss, Morgan, Kenney, Safer & Hampton, P.A., Jacksonville, Florida. Undergraduate degree from Arizona State University and Juris Doctor from Mississippi College, with Distinction. Author of numerous articles and seminars on real property, probate and estate planning issues. Member Florida, Tennessee and Jacksonville Bar Associations; served as chairperson of the Probate and Trust Law Section of the Jacksonville Bar, and is an active member of the Elder Law Section of Florida Bar and the AARP Legal Services Network. Member National Academy of Elder Law Attorneys and Academy of Florida Elder Law Attorneys and the Northeast Florida Estate Planning Council and Adjunct Professor of Law, Florida Coastal School of Law. Practice areas include elder law, estate planning and probate, real estate, corporate and business law. Email rmorgan@flfirm.com