Saving a Parent’s Legacy from the Cost of Long Term Care

Val Manzo_BW photoValerie S. Manzo, Esq. a New York attorney who practices in the areas of Elder Law, Estate Planning Medicaid applications, Probate, Real Estate and Zoning, comments on the proper estate planning to save your parents life’s savings.

In my 33 years of practice, I have met many folks who end up doing “crisis planning”, in situations where a loved one suddenly can no longer take care of their “activities of daily living”. The adult children are faced with so many challenges at once: grieving for the parent’s loss of ability to care for him or herself, an avalanche of duties in selecting a proper residential placement, dealing with the “well spouse’s” shock over placement of the disabled one, sticker shock regarding the financial impact of the costs of long term nursing care, the prospect of losing the ill parent, and many others. When prospective clients sit at my desk and a Medicaid application is about to be made to cover the long term care costs, I always tell them “you’d better like me because we are going to go steady for about six months”. And, we do.

What is a person to do to avoid this? Take good care of yourself, and help you parents do the same. Plan for incapacity. And then hope for the best. None of us can predict just who will get the sort of illness that will lead to incapacity………..Alzheimer’s Disease, Parkinson’s disease, or one of the other diseases which leave you alive but unable to remember what you need to do, or undertake caring for yourself such as bathing, dressing, eating, cooking, walking, transferring from bed to chair, toileting yourself, and remembering to take your meds, or the other “activities of daily living” which enable you to live on your own.

When meeting with clients to make plans for asset protection, most attorneys use “Questionnaires” to elicit information and get the full picture of one’s assets, familial relationships, goals and dreams, and health. Once all the parameters are known, a plan can be put in place. How things are titled is key, and how the client selected beneficiaries and contingent beneficiaries for assets such as Life Insurance policies, IRAs and annuities must be ascertained and, if necessary, changed. One can have all sorts of unanticipated results from uneducated planning. For example, one can name a spouse as IRA beneficiary, and two adult children as contingent beneficiaries. The agent holding the asset, such as Raymond James, Merrill Lynch, etc. etc. may or may not discuss what happens of your spouse is gone and one child does not survive you. How many people know that “winner takes all”? So, if your son is unlucky enough to die before you, your daughter gets it all…and your son’s kids are disinherited, due to inadvertence. So, these grandchildren not only prematurely lost a parent.  When grandma or grandpa dies, they get nothing from what could be a sizable IRA, and their aunt gets everything in grandma’s IRA. Sound like a good outcome?

For this reason and many more like it, we all need to make a thorough and thoughtful estate plan. And the only way to do that is to have a “family meeting”, get elderly mom and dad to make a list of absolutely everything they own, get them to get letters from places holding their assets listing beneficiaries and contingent beneficiaries, and bring it all to a skilled estate planning attorney. He or she, working with a skilled financial planner, can lay out a plan of action.

Another common mishap is that folks, having executed a Will ten or twenty years prior, think they are done. They have provided for what happens when they DIE, but what about their own incapacity? We are statistically much more likely to wind up disabled than we were twenty years ago, when certain diseases killed us. We all need to have Powers of Attorney, Health Care Proxies and Living Wills to confirm our wishes if we are disabled, even temporarily.

What about ready cash? So many small business owners have no one authorized to access their accounts should they die. And so, their businesses become tied up during the Probate process, as their Wills are verified and while awaiting Letters Testamentary, and their loved ones cannot even pay the business bills, get business mail, or take care of their loved ones affairs, due to improper planning………or none at all. This too can be avoided by the estate planning client and her attorney.

What about the now-famous Medicaid “five year look back”?  This is the period one must keep uppermost in one’s mind, as a need  to pay for long term residential nursing care (in a nursing home) is now about $450 per day. One can lose all one’s assets in short order if all she has is a Will. But if she had, prior to the sudden need for residence in a nursing home, placed assets into an Irrevocable Trust,  five years from the “transfer to trust” her trust assets are not considered for imposition of Medicaid’s  “penalties” for said transfers.  Keep in mind that the only program that pays for long term nursing home care is Medicaid. And it is a program created for the benefit of the sick poor. You must be down to $14, 400 and an Irrevocable Burial Trust to qualify for coverage by this program. Any other assets, unless placed into an Irrevocable Trust or given away as a gift, are subject to the costs of such care.

So why not just “give the house to the kids”? Because an outright gift has ghastly tax consequences if the kids sell to a third party after you die. Capital gains taxes are based on what grandma and grandpa paid…meaning the IRS subtracts from the net sale proceeds the cost of grandma’s purchase and the kids get to pay capital gains tax on that large amount.  This can be avoided by proper planning.

Health care decision-making and end of life choices are also essential topics to be discussed with counsel.  Many a time I have received frantic calls from adult children whose loved ones are in a hospital or rehabilitation center and have taken a turn for the worse. The doctors want to place a feeding tube, place a stent for kidney dialysis, or some other procedure, even though mom is in extremis and not likely to revive and be her old self again, or have any quality of life if the current crisis is averted. A loving child would always extend life, you may think. But, in many instances, the quality of life that mom would have, even with the best of outcomes, is not what grandma would want. So, the adult child must carefully weigh the choices and evaluate the outcomes. If mom or dad had discussed such a situation with counsel, and selected the proper child or friend or relative to make such tough health care decisions if mom or dad could not do it, then the determination would be so much easier for the child to handle. This lessens the grief and guilt over making such heart-wrenching choices, and, when I have been the one to have these conversations with the elders, I am happy to convey their wishes and discuss the choices with the children. Many clients will have had such a conversation with their kids themselves, but some may not have had the chance.

The end of life need not be torture for the elder and the loved ones they leave behind. We will all be there one day. The best way to handle it is to face it squarely when we are hale and hearty and can think clearly and make our wishes clear.