At first, it looked like George would make a complete recovery, but then he suffered a setback, a second stroke resulting in permanent paralysis.  It became clear that he would need long term care.  Claire didn’t want to place him in a nursing home, thinking she would be able to care for him at home.  Very quickly, however, the family realized that they would need home health aides.  Providing care is exhausting, physically and emotionally, and Claire, at 70, just couldn’t provide the round the clock care that was needed.

 For the first time, George’s family faced the reality of the long term care system and they were shocked.  George and Claire never did buy long term care insurance.  The health insurance plan that they had for years through the business, they soon learned, didn’t cover the type of custodial care George needed.  They were facing $100,000 a year in expenses and no insurance coverage for it.

 That’s when John called us, hoping we could help.  I went over the financial numbers.  George and Claire owned a house and about $800,000 in investments.  George also owned the business and the building which houses the business,  John estimated the combined value at over $1,000,000 but he wasn’t confident in those numbers since they had never before valued either.  Then John asked the $64,000 question.  Could they get any help, meaning government benefits?

 I explained how Medicaid works, that it’s a needs based program.  Claire, as the healthy spouse, could keep the house and just under $110,000 before Medicaid would cover George’s care.  “Does that include the business and the building?”, John asked.  “Dad always talked about a succession plan to transfer ownership to James and I, but he just never got around to doing it.”  Next week I’ll tell you what I told John.

My Name is on Mom’s Checking Account (Part 2)

January 16, 2012

Last week we were discussing Melissa and her mom.    Melissa has been handling Mom’s finances for several years as agent under Power of Attorney – or so she thought.  We discovered that actually Melissa is a co-owner on the account.  She can still write checks, pay Mom’s bills, and access her account so does it really matter that she is co-owner rather than acting as an agent with respect to the account?

 Melissa’s co-ownership carries with it certain legal rights and responsibilities.  Firstly, if Melissa is a co-owner, the assets in Mom’s account are now subject to Melissa’s creditors being able to reach it.  For example, if she is sued and a judgment is obtained against her, the account can be accessed to satisfy that judgment.  We can’t say it’s Mom’s money.  The same thing applies if Melissa files for bankruptcy.  Any account which she is listed as a co-owner may be seized by the bankruptcy court and trustee.

 If Melissa is married and goes through a divorce, the joint account might be considered marital property in a divorce proceeding.  Melissa’s husband could assert a right to one-half of the account.  It doesn’t matter that it was always Mom’s money and that she didn’t intend to give it to Melissa.

 Ownership means that Melissa can legally take the money for her own purposes, even though that wasn’t the intention.  That may not be a concern in her case but in some instances it could be an issue.  It might be tempting for a co-owner to “borrow” some of the money in the account.  That could be a real problem if the parent needs the money for his/her care needs.

 Co-ownership of a bank account typically means joint with right of survivorship.  What most people don’t realize is that this changes how that account passes when an owner dies.  Mom’s account will not pass under her will to Melissa and her 2 siblings, but instead, will pass only to Melissa as the surviving co-owner, even though Mom never intended it.  Melissa can honor her mother’s wishes and share the proceeds with her brother and sister, but legally she is not required to do so.  If she does, it will be considered a gift from Melissa, potentially subject to gift tax payable by Melissa.

 This unexpected change could cause bad feelings amongst family.  Let’s alter the facts a bit.  What if Melissa maintained that Mom really intended to leave her the account in gratitude for the time Melissa spent on Mom’s behalf?  If she never communicated that to her other children, Melissa is left to explain it.  At worst, her siblings could sue her to try to establish that Mom never intended that result.  At best, the bad feelings could linger for years and cause family disharmony.

 To the untrained eye, three little letters “POA”, may not seem like much.  But as you see, without proper legal guidance, they can add up to a whole lot of heartache for families.

My Name is on Mom’s Checking Account (Part 1)

January 9, 2012

It’s an issue I deal with frequently as an elder law attorney.  Melissa tells me she has been handling Mom’s finances for several years.  She writes checks from Mom’s checking account and transfers funds from Mom’s other accounts, as needed, to pay the bills.  She says she does it because she has power of attorney.  Upon further inquiry I learn she is actually co-owner on the account.  Does that matter?   Is there a difference?

 Yes, it matters and yes there is a difference.  Let’s look first at the difference.  A power of attorney is a document in which the principal designates an agent to act on the principal’s behalf.  A financial power of attorney will typically give the agent the power to conduct financial transactions, such as pay bills, access bank and investment accounts, conduct real estate transactions, pay taxes, etc.  It can be as all-encompassing or limiting as the principal wishes.

 With respect to bank accounts, the power of attorney will give the agent the ability to write checks on the prinicipal’s behalf.  The agent will sign his/her name followed by the initials “POA” .  If Melissa is Mom’s agent, then she is acting in a fiduciary capacity and must act in Mom’s best interest.  The assets in that account are still owned by Mom.  However, if Melissa is a co-owner of the account, then those assets become hers or, in some cases, one-half of the assets become hers.

 It is very easy to misunderstand the difference and in many cases we have found that people are under the impression they have set up a POA situation when in fact they have made their “agent” a co-owner.  A careful review of a monthly bank statement can reveal the answer.   If Melissa is an agent under power of attorney, her name would not appear on the bank statement or it would appear with the initials “POA” after it.  She produced a recent statement and it listed Mom and Melissa’s names but no “POA”.  A call to the bank confirmed that Melissa is a co-owner of the account.

 Now that we understand the difference, let’s go back to my first question, “Does it matter?”  We’ll delve into that next week.

Mom Has $1,000,000 – She’ll Never Run Out of Money (Part 2)

January 2, 2012

Last week we were discussing Paul’s mom, 88 years old and in need of nursing home care.  She has $1,000,000 in assets so first impressions suggest that she won’t ever need Medicaid.  But, upon further examination, we might want to reconsider that conclusion.  Here’s why.

Paul’s initial statement about never qualifying, or thinking he might need, Medicaid for his mother is a common one.   It assumes that there is one sole concern, long term care for Mom.  While that is certainly the primary concern, in this case it isn’t the only one.  As we learned, Paul’s brother, Bill, is unable to support himself.  Although he hasn’t been deemed disabled or been clearly diagnosed as far as Paul knows, Bill will likely need assistance the rest of his life.

Mom attempted to address his needs by leaving a portion of her estate to Paul to help provide for Bill’s needs (as I have written in previous posts,  not the optimum way to do this. A trust for Bill’s benefit is a much better way to go).  The more she spends for her care, however, the less there will be to support Bill.  That’s why Medicaid is important here.

I told Paul I could help but we’d have to act quickly.  We could set up a trust and transfer a portion of his mom’s assets to that trust.  But we need to keep enough assets in her account to cover 5 years of nursing home care.  Why? Because when we apply for Medicaid we’ll need to show, that from the date we apply going back 5 years, that she didn’t make any transfers for less than fair value, which, of course, she would have done.

I know what you may be thinking.  Why should the government pay for her care when she has the money to pay for it herself?  But is it really that simple?  Life rarely is.  Bill has no way to support himself.  He’ll end up destitute and Paul doesn’t have the means to support him.  Mom had always intended to provide for his care.  She just didn’t go about it the right way.  Luckily, Paul called us with enough time to fix things.  Mom will still pay plenty towards her care, probably close to $600,000 if she lives 5 years but there should be enough left for Paul to provide for his brother.

Paul’s scenario is not all that uncommon.  Families are often wrestling with more than one problem at a time.  Long term care is the most pressing one but there other competing interests.  It is, therefore, critical that you take a wider view of the landscape and over a longer time frame.  Which means that you might not have enough money as you think you have and it may be time to put a better plan in place.