Estate Planning Basics
The day-to-day commitment of caring for a loved one is overwhelming to say the least. On top of that, dealing with the financial and legal aspects of planning for death and dying can be confusing and stressful. Here are a few key things to help you navigate these issues should they arise:
#1: Planning for Incapacity
A major concern is about how to handle our loved one’s financial and health care needs, particularly in the event that person is no longer able to make decisions for themselves.
- Power of Attorney: A financial Power of Attorney is a relatively simple document that gives someone else authority to make financial decisions for you if you become incapacitated for any reason. Your loved one may name you as that person, called the attorney-in-fact, to act in his/her best interests to perform transactions on his/her behalf such as paying bills, selling your real estate if it is necessary, etc. when he/she is no longer able to do these things on his/her own. If your loved one becomes incapacitated and does not have a Power of Attorney, you may need to go through a Court process to obtain a conservatorship.
- Health Care Directive: A Health Care Directive is a two-part documents where you 1) name someone to make health care decisions for you if you cannot do it on your own; and 2) identify your end of life choices. You can get this document free from your hospital or online. An attorney can also help you prepare one. Once completed, you must sign this document either in front of a notary public or two witnesses. You must also give a copy to your health care provider. Having conversations with your loved ones about the second part of this form (the end of life choices) is very important. While we cannot anticipate every circumstance we may encounter at the end of our life, it is such a benefit to your family to discuss our overall goals and wishes so it isn’t left a mystery.
- Guardianship/Conservatorship: In some cases, it is necessary to obtain a Court order to have legal authority to act on behalf of your loved one. There are two parts of your request: 1) legally finding the person to lack capacity to make his/her own decisions; and 2) naming someone to be the guardian/conservator. This is a Court process and requires a Court hearing. Legal authority over the “person” – where one lives, medical treatment, etc. – is called a guardianship. Legal authority over the “estate” – dealing with people’s money, contracting for them, etc. – is called a conservatorship. Often times, we request that the Court appoint both, a guardian and conservator, in order to have all authority covered. The process usually takes about six weeks (unless there is an emergency) to go through. The guardian/conservator must file annual updates with the Court following his/her appointment.
#2: Planning for Death
There are many myths and misunderstandings about end of life planning. The number one myth I hear is: “A Will avoids probate.” This is not true. A Will is instructions for probate. It does not avoid probate. The way your assets are titled determines whether you have an estate to be probated. Having a Will may reduce the cost of probate and provide more direction for your family and friends. Contrary to what some people have been told, your property will not go to the State if you do not have a Will. The law essentially has a “Will” drawn for you, which outlines who gets your probate property should you die without a Will. A probate will be started and your “heirs” (the people that will inherit) are determined. Often times, however, this is not what people would have wanted. That is why it is important to have a Will to direct to whom you want your assets to go. Also, a Will can include a trust to hold and manage your assets for the benefit of your children or someone with special needs.
Rather than having a Will and have your estate go through probate, you may choose to hold your assets jointly with someone, create a living trust, or name beneficiaries on your accounts/assets. These are all ways to avoid probate. It is important, however, to fully understand the practical, legal, and tax effects of planning with these alternatives.
Too often children are left not knowing what their deceased parents owned, or much less what they had for an estate plan. It is important to keep your important records organized, in a safe place, where they can be easily found by your survivors. While it is not necessary to discuss the details of your plan, we encourage you to have a discussion with your loved ones about where they can locate the necessary information when the time comes. This is never an easy discussion, however, it may relieve added stress during a difficult time.
#3: Paying for Long Term Care (Nursing Home)
Medicaid (called Medical Assistance in Minnesota) is a government program that provides health insurance coverage for low-income seniors and people with disabilities. As the baby boomers age, Medical Assistance’s other role, as a source of long term care (nursing home) benefits, is getting more attention. The following is an overview of Minnesota’s Medical Assistance program for seniors needing long term care services:
- Asset Rules: An individual may have no more than $3,000 in “countable” assets to be eligible for Medical Assistance nursing home benefits. Assets that are not counted or excluded from this calculation include personal possessions, one motor vehicle, a principal residence (if married), prepaid funeral plans, and other assets deemed to be inaccessible such as certain trusts, and some non-homestead properties. For a married couple, their assets are totaled as of the date that a spouse enters a long-term care facility in which he or she then stays for at least 30 days. To promote the independence of the nursing home resident’s healthy spouse, referred to as the “community spouse,” that spouse may keep up to $123,600 (2018) of the couple’s countable assets.
- Transfer Penalty: To avoid giving benefits to those who present a false picture of poverty, there is a transfer penalty that is imposed when people transfer assets without receiving fair value in return (a “gift”). The gift is divided by the average monthly cost of a nursing home, which is currently $7,288. The person is then ineligible for Medical Assistance during the resulting number of months. For example, Jane gives a gift of $25,000 in August 2018, and goes into the nursing home on January 1, 2019. Jane would be ineligible for Medical Assistance for just over four months beginning on the date she would otherwise have been eligible, if not for the gift. Therefore, Jane would have to find a way to pay on her own until Medical Assistance would kick in December 2018 ($30,000 gift / $7,288 = 4 months). Several rules limit the impact of this transfer penalty. First, Medical Assistance looks only at transfers made during the 60-month “look-back period” preceding the application for Medical Assistance. You are not required to report transfers made five years prior. Second, the transfer of assets to particular categories of individuals, such as spouses, and blind or disabled children, will not bring about a penalty. Finally, a penalty can be disregarded to the extent the transferred assets are returned.
- Treatment of Income: The starting point for dealing with income under Medical Assistance is that long term care residents pay all of their income, less certain deductions, to the nursing home. The types of deductions are as follows: a $99 per month allowance for the resident’s personal needs; a deduction for any uncovered medical costs, including premiums for medical insurance; for married applicants, an allowance for the spouse at home if s/he needs income support; and a deduction for any dependent children living at home. Income belonging solely to the community spouse is off-limits. It is not taken into account in determining eligibility and the community spouse will not have to use his/her income to support the spouse receiving Medical Assistance benefits in a nursing home.
- Planning Tools: There are several ways to conserve assets from nursing home costs: 1) You may spend money on uncounted or excluded assets; 2) You may make gifts to others; however, gifts will trigger the transfer penalty with no minimum amount; 3) You may transfer real estate to another person while reserving the right to use the property for your lifetime (a “life estate”). However, this is a gift, which will cause a transfer penalty. Also, the State can place a lien on the value of your life estate interest, but the remainder interest in the property is protected; and 4) You may obtain a long-term care insurance policy. There are various types of policies designed to meet your needs and your budget, which can be discussed with a Certified Financial Planner.
Weeding through the complex laws and rules related to incapacity, end of life issues, and paying for long-term care can be overwhelming when you or a loved one are facing these issues. If you are faced with such a situation, contact an attorney specializing in elder care and estate planning to assist you.
CLAUDIA M. REVERMANN is the owner of Revermann Law where her primary focus is to educate and serve her clients with confidence and humbleness. She practices in the areas of estate planning, probates and trusts, taxation, and business and real estate law. She is also a Certified Public Accountant and, prior to practicing law, was a tax accountant in a large regional accounting firm. Claudia recently launched another business, Lucent Tax Relief, to help people resolve their tax problems in a way that is transparent and reliable. Claudia earned her B.A. degree in accounting from the College of St. Catherine and her J.D. degree from William Mitchell College of Law. Claudia was recognized for her achievements by being named as one of St. Cloud Times Media’s 5 under 40. She speaks frequently for community and legal continuing education events and has a passion for educating people. Claudia is the past president and current member of the Central Minnesota Estate Planning Council, and volunteers with the Minnesota State Bar Association’s sponsored Wills for Heroes program, is on the finance committee for the St. Cloud YMCA, the policy committee for St. Cloud area Catholic Community Schools, and also serves on the Central Minnesota Community Foundation’s Women’s Fund board.