When one spouse enters a nursing home (Referred to as the “Institutionalized Spouse”), the spouse remaining at home (Referred to as the “Community Spouse”) often faces economic uncertainty.

One of the responsibilities of elder law attorneys in Pennsylvania (PA) is to assist the Community Spouse to maximize the amount of income they can retain once their spouse enters a nursing home.  We recognize that life will continue for the Community Spouse well after their spouse has entered the nursing home.  He or she will continue to have significant expenses going forward including, but not limited to maintenance of their home, real estate taxes, car and home owners’ insurance, rent or mortgage, health care, food and clothing.

The client must submit documentation to the Pennsylvania Department of Public Welfare (Referred to as “DPW”) requesting that they perform an asset assessment at the time the Institutionalized Spouse enters a nursing home.

To learn more about Pennsylvania Department of Public Welfare and their programs click here.

Generally, the resource assessment is the process for determining how much of the marital asset base can be retained by the Community Spouse even after his or her spouse enters a nursing home.  Conversely, the process also determines the portion of the marital assets that must be spent down before the Institutionalized Spouse becomes eligible for Medicaid.  The resource assessment process has and will be reviewed in more detail in other articles on this site.

Suffice it to say, the resource assessment is very important as it relates to the Community Spouse’s ability to retain a portion of the marital assets.  The resource assessment is also a stepping stone to a determination of the portion of the marital income the Community Spouse will be permitted to retain.  Although I will not detail the resource assessment here, I do want readers to know that there a number of pitfalls relating to the timing of the submission and the valuation of assets for the resource assessment.

Once the resource assessment is complete and the Department of Public Welfare in Pennsylvania has made an asset retention finding, the Community Spouse will have an opportunity to submit a DPW worksheet for determination on the portion of the marital income that he or she may retain during the time the Institutionalized spouse is receiving Medical Assistance/Medicaid.

This is often a critical juncture for the Community Spouse.  We want to obtain the Community Spouse’s Maximum Monthly Maintenance Allowance (MMA) within the guidelines set by the Department of Public Welfare (DPW).  The Department of Public Welfare releases figures annually that represent the minimum and the maximum amount of marital income a Community Spouse may retain.

To achieve the Maximum Monthly Maintenance Allowance, the applicant must document all expenses and all sources of income.  It is important that all eligible expenses are included and that you portray the income sources in a way that is most favorable to the Community Spouse’s efforts to maintain economic security.  Once the worksheet is completed, you will have a very good idea of the amount of monthly income the Community Spouse is permitted to receive.

If the total income earned by husband and wife is below the Maximum Monthly Maintenance Allowance then the Community Spouse will have a relatively brief opportunity to take steps to increase his or her own Monthly Maintenance Allowance.

This opportunity could be lost quickly so decisive steps must be taken.   One of the best options will be the purchase of an actuarially sound Immediate Annuity.  This planning option allows the Community Spouse to transform assets that would otherwise have to be “spent down,” before the Institutionalized Spouse becomes eligible for Medicaid into an income stream.  This allows the Community Spouse to both increase the income stream while his or her spouse is in the nursing home and also to maintain that increased income stream should the institutionalized spouse pre-decease him or her.

The relatively short period of time following the first spouse’s entry to a nursing home is very important for the financial well being of the Community Spouse.    The Community Spouse should seek professional assistance to insure they are protected to the greatest extent possible.

To read how you can avoid or prolong your need for a Nursing Home  for you and or your spouse click on our article Veteran’s Benefits Can Help With Assisted Living Costs.

Also, read this review of the benefits of Long Term Care Insurance.

Douglas L. Kaune is a partner in the Estate & Trust and Elder Law sections of Unruh, Turner, Burke & Frees, P.C.  Please call Doug at 610 933 8069 to discuss your planning needs and to schedule a no obligation initial consultation.

As a part of our Pennsylvania (PA) Estate Planning Package we will prepare both a general financial power of attorney (FPOA) and a medical power of attorney (MPOA) for a client to sign.  The two separate power of attorney documents are very important, but used for very different purposes.  This article outlines the Medical power of attorney issues as they relate to admitting a loved one to a nursing home.  Further, the article reviews the options available to someone who does not have a medical power of attorney either because one was never signed or because it was revoked.

Medical Power Of Attorney

The  medical power of attorney (MPOA) contains very broad medical powers ranging from selecting doctors and authorizing surgery in an accident situation to making final decisions when someone is in a hospital and not expected to recover.  The Medical Agent is also given the authority Agent to select and sign entrance documents for a nursing home.   However, the MPOA can be revoked so long as the person who originally created it is mentally and physically able to do so.  The process for revoking a MPOA is simple and requires no Court proceedings.  One only needs to send a letter to the Agent documenting his or her wish to revoke the MPOA.  As a result, the person granting the MPOA can refuse to go to or stay in a nursing home regardless of the actions of their named Agent if they still maintain their mental and physical capabilities.

Guardianship

If you believe your parent or loved one needs nursing home care, but is refusing it, you might have an alternative.  If your parent or loved one has lost mental capacity, you can seek guardianship over their person and estate.

The guardianship should be a last resort action as it can be more time consuming, expensive and restrictive than a FPOA and MPOA combination.  However, where your parent or loved one  cannot sign a power of attorney or has wrongly revoked one, the guardianship process might be a necessity and will serve an important purpose.  The guardianship will require a Court determination on the parent’s or loved one’s mental capacity.

The Court appointed guardianship cannot be easily revoked and will allow you to make more authoritative decisions on nursing care.  The guardianship process serves to provide Court backing for all necessary decisions.  It also allows the nursing home and other medical professionals to feel comfortable that the guardian is authorized to make decisions and that their position will not be revoked or undermined.

Read this article for a further review of the Guardianship process in Pennsylvania and some tips for avoiding or defeating a Guardianship contest.

As noted, we will try every other option before seeking guardianship.   Despite this, we know it is an important legal option.   If you need assistance with a guardianship process or other Elder Law or Estate Planning issue please contact Doug Kaune at 610 933 8069 or dkaune@utbf.com.

The Medicaid Intentionally Defective Grantor Trust (MIDGT) might give you the opportunity to have the proverbial cake and eat it too.  Our clients have long used the Medicaid Asset Protection Trust in various forms to shelter some or all of their assets from the ever rising cost of long term nursing home care.  The irrevocable trust option offers significant protections to the person making gifts to protect assets from nursing home spending.  These protections make gifts to an irrevocable trust a much more powerful option than gifts outright to children.  Read this related article which outlines some  of the general benefits of the Medicaid Asset Protection Trust and compares the use of the irrevocable trust to outright gifting.

Clients are now considering a relatively new blend of a traditional estate planning tool, the Intentionally Defective Grantor Trust  (IDGT) and the Medicaid Asset Protection Trust.  The assets transferred to the MIDGT  are still protected from nursing home spending after the necessary gifting Medicaid ineligibility period, however there is another potential perk.  The person making the gift (Grantor) to the MIDGT has to pay the income tax on the earnings on the MIDGT assets.  Yes, you read that correctly.  The Grantor might actually want to pay the income tax rather than have the Trust pay the income tax.

By paying the income tax on the earnings of the Trust assets, the Grantor is actually allowing the Medicaid Asset Protection Trust to grow without being reduced by income taxes, they are also likely to pay income tax at a lower rate than would the Trust entity and are likely to be able to take advantage of many personal income tax deductions that the Trust would not be able to avail itself of.  Medical care cost deductions are often available to individuals who enter into Elder Law planning.   This are often significant and can be used to offset gains in the MIDGT.  If the Trust had been made responsible for paying the income tax, the individual’s medical care costs could not have been used.

The MIDGT is not for every client looking to protect assets from nursing home spending.  A Grantor has to be willing and able to both forego the right to the income paid from the Trust and simultaneously pay the income tax.  This can be a complex yet beneficial option that should be discussed in depth with your Elder Law and accounting advisors.  It is just one more of the powerful tools and options we have at our disposal when assisting with the plans to save assets from nursing home spending.

If you would like to review the MIDGT or other Medicaid Asset Protection Trust options, please contact Douglas L. Kaune at 610-933 8069 or dkaune@utbf.com.

Douglas has conveniently located offices in Phoenixville, Malvern and West Chester, PA.  He is a Partner with the law Firm of Unruh, Turner, Burke and Frees, P.C. serving clients in Chester, Montgomery, Delaware, Philadelphia, Berks and Bucks counties.

I recently met with a client of mine who related a story to me about a family friend who just finished spending $1,000,000 on her nursing home care.  Luckily the client gave me permission to share that story in general terms so that others might learn that these economic disasters are real.  This story will hopefully alert others to the perils of waiting too long to enter into Medicaid and Nursing Home Planning in Pennsylvania (PA).

The woman referenced was, but no longer is, the prototypical millionaire next door, living modestly, not spending and therefore accumulating a nice estate.  She is a widow and has three children all living outside of Philadelphia (PA).  She spoke frequently of helping her children by leaving them her estate when she passed away.  She was an apparently healthy and hearty 73 year old when she had a stroke.  She had not signed a financial power of attorney  or medical power of attorney.

After the stroke, she was no longer able to live at home, she needed to enter a nursing home and could not sign a power of attorney document because of diminished mental capacity.  As a result, one of her children had to go to court to obtain guardianship  over her person and estate.  The guardian was not permitted by law to enter into Medicaid or Nursing Home Planning because that planning was deemed to be “detrimental” to the person over whom guardianship had been granted.

The guardian has therefore been spending $65,000 to $100,000 per year over the last 15 years on the nursing home fees, medications and related items.  The guardian has just spent the last of the estate assets and her mother has just qualified for Medicaid at the age of 88.  There will be nothing left to distribute to her children at her death.

Obviously, this is an extreme story, but it should serve as a wake up call to anyone who thinks “It won’t happen to me” or “I have enough money to cover the cost of Nursing Care” or “I have plenty of time to do Elder Law Planning.”  You never know when the time for nursing care might arrive.

If you are a Pennsylvania (PA) resident or resident of another state, please take the time to consider Elder Law Planning now.  You can sign a financial power of attorney that specifically authorizes Medicaid Planning and unlimited gifting.  You can consider transferring some portion of your estate to a Medicaid Asset Protection Trust and many other planning opportunities.  Understand your planning options now so you can take steps to help preserve your estate.

Read this article on early gifting to a Medicaid Asset Protection Trust.  And this article on the Medicaid Financial Power of Attorney for some additional insight into these important topics.

Please contact Douglas L. Kaune at 610 933 8069 or dkaune@utbf.com to discuss your case and the planning options available to you.

I meet with many clients in Pennsylvania (PA) who are under the mistaken belief that the Medical Power of Attorney document is synonymous with another document referred to as an Advanced Directive or Living Will.

The Medical Power of Attorney is much more broad and inclusive than either the Advanced Directive or Living Will. The Medical Power of Attorney allows an individual to appoint another individual or other individuals to represent them in any and all medical decision making.

The Advanced Directive and Living Will are written to address the final and extreme circumstances relating to treatments that are simply life sustaining and not expected to result in patient recovery. The Advanced Directive and Living Will do not address other more common medical circumstances.  Obviously, the Living Will is very important, but it is not enough.

While, the Medical Power of Attorney should authorize the named Agent to advocate on a patient’s behalf in the final life sustaining care circumstances, commonly referred to as the “Pull the Plug” stage of life, it should also authorize the Agent to handle all other medical issues. These issues include, but are not limited to, the selection of doctors, surgeons, medical facilities, medications, the ability to authorize surgery, medical treatments and care plans in all phases of life.

Consider a situation arising in which you or a family member are in a car accident.  There will be many decisions to be made but, without a medical Power of attorney document, no one might be authorized to make them.  Further, there could be differing opinions on how to proceed and family members might be pitted against one another.  The medical POA document will authorize selected individuals to make appropriate decisions and t0 make them timely.  Absent the medical POA, you could either have the wrong person making decisions or no decisions being made at all.  You might also suffer the delay caused by a family dispute and the process for resolving how to proceed.

Please also note that a properly crafted Medical Power of Attorney should have a very broad Health Insurance Portability and Accountability Act ( commonly known as HIPPA) authorization so that the Medical Agent may properly and easily interface with medical professionals.

It is very important that your planning documents include the Medical Power of Attorney AND the Advanced Directive or Living Will. Simply stating your final wishes in an Advanced Directive or Living Will is often not enough. You will likely want and need someone to act as your Agent in many more necessary and far reaching medical care situations.

Read this article on the General Durable Power of Attorney for additional information on the proper contents of your POA planning documents and how they should be prepared.

If you have questions regarding this or other planning issue, please contact Douglas L. Kaune at 610 933 8069 or dkaune@utbf.com.

Medicaid Asset Protection Planning is often entered into by a Community Spouse when his or her spouse is likely to enter a long term nursing home. Often, this planning is geared to protecting the assets for the Community Spouse and insuring their financial future. In these cases the planning opportunities may be limited because of the nursing home spouse’s Medicaid application and the related gifting rules. Therefore, we may be able to protect the Community Spouse, but are not able to fully protect the marital assets should the Community Spouse also need nursing home care in the future.

In these cases, should the nursing home spouse ultimately pass away with the Community Spouse still at home, the Community Spouse should update his or her Elder Law Plan. After the death of the first spouse, the surviving spouse can more easily make use of other planning options. These planning options can then include gifting to Medicaid Asset Protection Trusts and other techniques. These gifts and other options will be under and subject to the Medicaid look back should the surviving spouse apply for Medicaid in the future.

However, if they keep their remaining assets in their individual name and need the long term care, the retained assets will almost certainly be spent on the nursing care. Although the surviving spouse may not choose to enter into any additional planning, he or she should determine what options exist so that they can make an educated decision.

Most importantly, the surviving spouse should understand that the opportunities available to them might be considerably different after the death of the nursing home spouse.

I have met with a number of children who would like to enter into Medicaid and Nursing Home Planning for their incompetent parent. They want to do so using a General Durable Power of Attorney prepared by another attorney many years ago. After a review of the document, I have to inform them that they are severely restricted by the language of that particular power of attorney. They are surprised to hear that all power of attorney documents are not prepared alike. The fact is, power of attorney documents are not simple forms that can be trusted to allow you to do everything.

Power of Attorney documents in Pennsylvania (PA) and most states must be tailored to allow an Agent to handle specific functions. You cannot simply say that your Agent can, “Do everything I can do.” Actions taken by an Agent that are not specifically authorized under the power of attorney document can be voided. Therefore, an Agent must be specifically authorized to enter into Medicaid Asset Protection Planning. This Medicaid planning power will include, among other things, the power to make unlimited gifts and to impoverish the person who granted the power of attorney. Obviously, a parent has to be secure that the child or children will act prudently when exercising this power.

You must pull that old general power of attorney document out and review the powers granted. If it does not include Medicaid and Nursing Home Asset Protection powers, you must update your document with a knowledgeable Elder Law attorney. This will insure that the Agent will be able to execute the Elder Law Plan when the time is right.

There is a generous exception to the Medicaid Five Year Look back and Ineligibility rules. That exception is called the Family Caregiver Exception.

Generally, a parent can transfer their home to a child who has lived in the parent’s home and has provided care to them for at least the two years prior to the need for nursing home care. That care provided must be determined to have been necessary to keep the parent at home and absent the care, the parent would have entered a nursing home.

Interestingly, we have many parents who actually sell their own home and move into their child’s home. Obviously, this scenario does not fit within the family caregiver exception because the parent does not own the home. Assuming the care provided by the child fits the statutory definition and we expect the parent to live in the home for at least two years before entering a nursing home, strong consideration should be given to the parent purchasing the child’s home.

Now the child has the cash received from the sale which they can invest as desired and the parent owns the home. Therefore after two years, assuming all other factors are met, the parent can transfer the home to the caregiver child should the parent need long term nursing home care. As a result, the child still has the original sale proceeds and the home without ever incurring the five year Medicaid ineligibility.

This can be very powerful for those who fit within this exception and the necessary structure. Extreme care should be taken and this option should be reviewed closely with experienced advisors.

Our clients are looking for ways to be able to shift their family assets to the next generation without being lost on the already staggering costs of long term nursing home care. Medicaid and Nursing Home Asset Protection Planning can take many forms.

One of the tools available to parents who are living with their children is the old fashioned lease. Yes, your child can be your landlord. Although your child would willingly and happily take you into their home without payment, this is an opportunity to shift a portion of your assets in a lawful and systematic manner.

First, we have to determine that the parent or parents are living in the home owned by their child. It should be obvious, but the parents cannot pay rent to the child if the parents actually own the home. Once that threshold is established, the lease must be structured in a realistic manner to approximate the fair market rental value of the portion of the home used by the parent or parents. The lease should also take into account the parent(s) share of the utilities to be paid. We take significant time to review these issues with clients to make sure that they will be viewed as acceptable payments when the parent or parents ultimately apply for Medicaid. Properly structured rental agreements will allow these payments to be made to the child without concern of the five year look back period. However, you will have to mindful of the income tax considerations for the child who is receiving the rental payment.

The gifting of assets in order to protect them from being spent on long term nursing care is a common Elder Law planning option.  The initial decision to make gifts will be dependent on various factors including, but not limited to, the Medicaid gifting rules, the total assets of the person making gifts and the health of the person making gifts.

We urge our clients who decide to make gifts to protect assets to protect them from nursing home spending to make transfers to an Irrevocable Trust rather than outright to the individual beneficiaries.  We refer to these trusts commonly as Medicaid Asset Protection Trusts.   However, there are different ways to write the trust document depending on certain underlying factors.  One of the factors is the tax status of the assets being transferred to the trust.

If you choose the Medicaid Asset Protection Trust as a vehicle for protecting your family assets from the ever rising cost of long term nursing care, be very conscious of the capital gains tax basis of the assets placed into the Trust.  Your original tax basis is determined by the purchase price you pay for an asset.  You can also increase the basis of certain assets, such as real estate, by making repairs or improvements.  For demonstrations in this article, we will assume the tax basis for assets is simply the purchase price.

There is actually a tax benefit that results when a person owns assets that have appreciated significantly at the time of their death.  This is called a step-up in basis.  The basis for those assets is no longer the purchase price, but instead is the value as of the date of death.  So, you see it might be advantageous to have  appreciated assets taxed in your estate at death because of this step-up in basis.  The benefit of having the assets included in your estate will further depend on the overall value of the estate, the need to pay a federal estate tax, PA Inheritance Tax Rates and the prevailing capital gains tax rates.  This will be an important review point for your estate planning and accounting professionals, but it is important for you to know that there are different way to write the irrevocable trust and that these nuances could result in thousands of dollars of tax savings.

If you have assets that have not appreciated considerably, you are more likely to want the Nursing Home Asset Protection Trust to be structured in a way to avoid inclusion in your estate for Pennsylvania Inheritance Tax Purposes.

Examples of low tax basis assets are cash and homes or stocks that have not significantly increased in value. Although avoiding the PA Inheritance Tax may seem like the natural decision, as mentioned above, there are actually capital gains tax benefits to having highly appreciated trust assets included in your estate.

The issue of making a Medicaid Asset Protection Trust includable in the grantor’s estate will be very important. You must be very clear with the attorney when discussing the value of assets to be placed in trust as well as the purchased price and adjusted basis. This key information will allow the advisers to determine the best tax structure for your Medicaid and Nursing Home Asset Protection Trust and overall strategy.

Read this related article about gifting of assets that have appreciated in value and how to preserve the step-up in capital gains tax basis.

Please contact Douglas L. Kaune at 610 933 8069 or dkaune@utbf.com to review your case and to schedule an initial meeting.  Unruh, Turner, Burke & Frees, P.C. is a full service law firm serving South Eastern Pennsylvania.