The Problem of the Unmarried Siblings (Part 1)
August 29, 2010
Denise called me regarding her family. Her mom was one of 10 children. 3 of the siblings had never married but lived together for many years in a home they owned together. As they reached their 80’s the siblings’ health began to decline and Denise, as the closest family member, geographically and personally, began to wrestle with the long term care issues that we are all facing with elderly loved ones. The unmarried siblings scenario is one we see often, with its own special set of problems.
Al, Betty and Carl were, in many respects, like a typical married couple living under one household. They combined their income to pay many of the bills, holding a joint checking account from which they paid those expenses. They also combined much of their investments and savings in joint accounts. This included the home which was titled in all 3 of their names. Everything worked out fine until Al’s health deteriorated to the point where he needed nursing home care. That’s when Denise called.
Al had spent down his retirement accounts in his name alone and some of the money in joint accounts but when Denise went to apply for Medicaid they asked for 5 years of financial records so the caseworker could determine where all of Al’s money went. And that’s where she ran into a problem because, for so many years, Al, Betty and Carl had combined much of their assets. So who’s to say what was Al’s, what was Betty’s and what was Carl’s? Denise thought she could just divide by 3 but the caseworker questioned the transfers into and out of those accounts, suggesting that Al owned more than 1/3 of these accounts.
Therein lies the problem we see so often. By combining their assets the 3 siblings had muddied the paper trail necessary to establish that Al had spent down all his assets. Why is this so important? Because if Al is spending his money for Betty or Carl’s benefit, that is a transfer for less than fair value and Medicaid will impose a penalty – a period of ineligibility – for benefits. This applies equally to Betty and Carl should they need Medicaid in the future. We need to separate their assets and clearly establish that each is paying their expenses from their own assets.
We were able to help Denise navigate through the Medicaid process and explain all transfers into and out of Al’s accounts – with some difficulty. We also helped her separate Betty’s and Carl’s assets, so things will go a lot smoother if Betty or Carl needs nursing home care and Medicaid.
Oh, and what about Al’s ownership interest in the home, you may ask? There is an exception in the Medicaid rules that permits the transfer of the home to a sibling who has an equitable interest. That was no problem here since both Betty and Carl had owned and lived in the home as long as Al.
New Regulations For Special Needs Trusts
August 23, 2010
I have written about special needs trusts in past posts on this blog. SNTs are a safe harbor for the assets of disabled individuals that allows them to receive government benefits and be able to use the trust assets to supplement those benefits, because we quickly find that what the government provides leaves much to be desired. However, these trust are very technical and the laws and regulations can and do change from time to time. A recent Social Security Administration regulation has made some very significant changes that trustees and beneficiaries of SNTs ought to be aware of.
Certain types of SNTs, referred to by attorneys as “first party SNTs”, require payback provisions. If there is anything left in the trust when the beneficiary dies the State must first be paid back all Medicaid benefits that the disabled individual received, before assets can be otherwise distributed. Many SNTs also have early termination clauses that provide for an early end to the trust. The new SSA regulations relate to these early termination clause.
For all trusts created on or after January 1, 2000, upon early termination, the assets must first be used to pay back Medicaid, similar to the requirement at the death of the disabled beneficiary. Additionally, all remaining assets must be payable only to the disabled individual. No one else can benefit from the trust. Finally, the power to terminate the trust early must be given to someone other than the beneficiary.
Some SNTs may already be in compliance with these new rules, but others will not. So what to do? Have a qualified attorney look at your trust and if necessary amend it. Failure to do so will cause the trust assets to be included as an asset owned by the disabled person and cause him/her to lose government benefits.
Mary’s Dilemma – Don’t Let it Be Yours
August 16, 2010
Mary called me in desperation. Her husband Bob had recently been hospitalized with heart problems. He is also struggling with the onset of Alzheimer’s Disease. Mary has been able to administer care to this point but it has taken its toll on her physically and mentally and her children are concerned about her health. Mary made a commitment to keep Bob at home. With the encouragement of her kids she called to inquire about benefits available to help pay for in home care which she expected to be nearly round the clock.
Bob and Mary’s combined income is about $2500 per month from Social Security and a pension. While they own their own home worth about $400,000, their savings are down to $50,000. There is no way Mary can afford the cost of Bob’s care, maintaining the home and still have something left to support herself. They have no long term care insurance policies. Mary figured there must be a government benefit program to help her. Sad to say there isn’t one that fits her needs and desires.
First I asked if Bob was a veteran. He was, having served during the years between the Korean and Vietnam wars. “Unfortunately”, I told Mary, “Bob cannot qualify for the $1949 per month of additional income VA Aid and Attendance benefits could provide because he was not a “wartime veteran”. Even if he could qualify, however, the VA pension is likely to be a mere drop in the bucket and would not solve Mary’s monthly income/expense deficit.
We then discussed Medicaid. I explained to her that in New Jersey the home based Medicaid program only covers about 40 hours per week and that is after Mary spends their assets down, in her case to approximately $20,000. Not very much help if you consider that Mary would have to pay for the rest of care out of her own pocket. She could take a reverse mortgage and tap into her home equity, but what would she be left with?
That’s a real concern because Mary could outlive Bob by 5 or 10 year or more. She’ll need every dollar of their assets to live in since she’ll lose some of their income when he dies, one Social Security check plus his pension. This is Mary’s dilemma. Put Bob in a nursing home and Medicaid will pay for his care there but that’s not what she wants. Keep him home, on the other hand, and she’ll deplete their remaining assets leaving her without enough for her own care down the road.
How did Mary end up in this predicament and what could she have done to avoid it? There are a number of things that Mary and Bob could have done to plan for the possibility of needing long term care. But, they should have taken those steps when they were both healthy. A combination of insurance, elder planning with an elder law attorney and realistic spending with an eye towards the future would have put them in a much better position to handle the crisis they now faced and given Mary much more appealing choices. Too late for this couple but not for future Marys and Bobs in coming years.
The Second Marriage Long Term Care Problem Revisited
August 9, 2010
Last year I wrote about the impact long term care has on a second marriage (see blog post 1/5/09). In the 19 months since then, I have seen an increasing number of second marriage “horror stories”. A call we received last week, again highlights the danger. Joe, a 70 year old widower, moved into a continuing care retirement community. He met Betty, a 75 year old widow, and developed a fast friendship. Eventually it led to marriage. Joe and Betty promised to care for each other “until death do they part.” That’s when the problems began for Joe.
A few years after their wedding Betty began a physical and mental decline that led to her need for assisted living and then nursing home care. Betty had savings of $200,000, as did Joe, but no long term care insurance. She lived long enough to spend her entire savings plus much of Joe’s. When she died Joe had only $75,000 in savings left. Joe and Betty were completely unprepared for how long term care would affect them. And Joe was totally unaware that Betty could have qualified Medicaid before she died.
Now, Joe’s health is declining. He never before shared his finances with his children so they were shocked to learn that his savings had been depleted. They are concerned that he will not be able to stay in the retirement community when his remaining funds are exhausted. I asked Joe, Jr. what his dad’s agreement with the community says about that. He doesn’t know because he’s never seen the contract. Dad said he could handle things himself, signing the 40 page plus contract without getting a second opinion. Well, he clearly can’t take care of things any longer. Joe, Jr. and his siblings will now have to make some tough decisions. But instead of having a plan in place with options to choose from, the family instead is reacting in crisis mode. Not the best situation to be in and one that could have easily been avoided.
Will They or Won’t They? An Update on Federal Estate Tax Law
August 2, 2010
My first post of the year (1/4/2010) concerned the elimination of federal estate tax for this year and this year alone. While that sounds like a good thing for the average American it’s not really because the law also eliminated the capital gains step up in basis. So many estates which never would have been subject to estate tax (or capital gains tax) may now face capital gains tax, unless Congress decides to retroactively reinstate the old law, which it was unable to do at the end of 2009.
We are now 7 months into the year, the first estate tax returns for those who died in 2010 are due in less than 2 months, and still nothing concrete from Washington. Many estate plans have built in flexibility in terms of placing assets into trusts to take advantage of the tax laws. The problem is that if we don’t know what tax law is in effect how can anyone know what choices to make?
The latest word is that a reinstatement of the old law is unlikely. At least that is what Senate Finance Committee Chairman Max Baucus of Montana said last week. Democrats want the reinstatement of a $3,500,000 exemption. Republicans want to eliminate the tax entirely. That would certainly be welcome news to families such as that of the late owner of the New York Yankees, George Steinbrenner. Neither side has the votes to get what it wants, however, a compromise that is now being floated may be good news for all.
Congress could permit more modest estates to elect to benefit from the step up in basis rules that were in effect last year. This would mean, for example, that if you inherited, at your dad’s death, his house or stocks that he held for many years, the basis for calculating capital gains tax is not what he paid but the value of the assets at the date of his death. So, if you sell those assets shortly after his death you owe no capital gains tax. This way, the 2010 law would benefit everyone, not just the wealthy.
While this makes a lot of sense, as we all know, that isn’t going to be enough to carry the day. Lawmakers will be taking their traditional summer recess in a few weeks. It’s not clear whether anything will happen but this all should come to a head in the next several weeks. Stay tuned.
