Estate Planning Bits

CT wife refuses to support her husband, and the Federal Courts say that makes him eligible for Medicaid.

Under the Medicaid program, an individual may be eligible for assistance with long-term care expenses, such as those incurred in a nursing home, if he or she meets certain financial qualifications. In determining eligibility, all assets of the individual and his or her spouse, whether held individually or jointly, must not exceed the program’s financial limitations.

Nevertheless, there is an exception existing under federal statute, which allows an individual living in an institution or nursing home to assign the right to be supported by his or her spouse to the State. When this right is transferred in this manner, the individual cannot be prevented from qualifying for Medicaid, even if his or her spouse’s assets exceed the financial threshold. This exception is often invoked where a spouse is unwilling or unable to provide the State information as to individual or spousal assets. In such a situation, an institutionalized individual is permitted to qualify for Medicaid benefits without being punished for his or her spouse’s inaction or refusal to cooperate.

In Morenz v. Wilson-Coker, this exception was utilized in a unique planning situation. In this case, prior to her husband’s qualification for Medicaid benefits, a wife transferred spousal assets in the amount of $323,131.00 out of the name of her husband, who was already in the nursing home, and into her name alone. Although these transferred assets far exceeded the financial threshold for eligibility and would normally render her husband ineligible for Medicaid benefits, she craftily submitted an assignment on her husband’s behalf, by way of a Durable Power of Attorney (with all necessary required language) he previously granted to her, which transferred his right to be supported by her to the State of Connecticut. Also, she submitted a document stating that she refused to support her husband.

In the end, the U.S. Court of Appeals for the Second Circuit held that the assignment and refusal were valid under the plain language of Federal and Connecticut law, and her husband could not be prevented from qualifying for Medicaid. Based on excellent legal Medicaid and estate planning advice, which included a basic, yet essential, Durable Power of Attorney, she was able to preserve her funds for herself and ensure that her husband’s long-term care needs were properly met.

Annuities purchase may jeopardize Medicaid eligibility for some seniors

Imagine an elderly couple walking into their local bank and depositing their social security checks, as they have done every month for the past 15 years. The difference is this time, before they leave, a man wearing a suit and a very bright smile asks if he can have a moment to speak with them about annuities, which he states are great investments and part of good Medicaid planning. Based on this advice, the couple purchases two annuity contracts with their substantial assets.

However, six months later, one of them is now admitted to a nursing home due to poor health, and their attorney has informed them that, contrary to the Bank’s representations, the annuity was not a good investment for them. It is indeed countable for Medicaid purposes. He advises them that the best solution to their problem is to surrender the annuity contracts and do alternative planning. Unfortunately, as the Bank freely informs them, there is a significant penalty (as high as 15%) for surrendering the annuities soon after purchase, and the gentleman with the big smile is conveniently nowhere to be found.

The above situation is one that many elderly individuals encountered in recent years. An annuity is a contract whereby an individual invests a sum of money in return for a specified periodic payout in the future (or immediately). Annuity contracts, although good investments in certain situations, can be very poor investments for senior citizens. This is due to the fact that an elderly individual may not live until the fruition date of the contract. Also, contrary to the advice of those who are not attorneys, the annuity will be considered an asset for Medicaid purposes in Massachusetts and many other states.

In fact, the MA Secretary of State, William Galvin, has been investigating various brokers and banks in relation to such annuity sales practices, and has stated "[m]y office has received several complaints from seniors and their families of high-pressure tactics used to sell an annuity to people for whom it was not an appropriate investment." As a result of this investigation, Bank of America has been prompted to issue full refunds to individuals who were 78 years old and over and purchased annuities during the years 2003 and 2004.

A word to the wise for elderly individuals who may anticipate needing Medicaid benefits for long-term care; it is crucially important that they gain appropriate legal advice before purchasing an annuity, or any other investment vehicle for that matter, as it may have unforeseen negative consequences on their financial future.

What is probate and how do I avoid it?

Probate is a court proceeding where the following takes place:

1)     The validity of your Will is determined

2)     An executor or administrator is appointed

3)     The executor or administrator inventories all of your assets that you held individually at your death

4)     All your debts, taxes and probate administration fees are paid

5)     Distributions are made in accordance with the terms of your Will or according the laws of intestacy in the event you die without a Will.

All of this does not happen overnight, and it is certainly not free. Probating an estate can be very expensive and can take years to complete. Probate is not private, meaning anyone can see what assets you have and where the assets are transferred. If these are concerns to you, it is important to understand how to avoid the probate process.

There are typically three ways to avoid probate. The first way to avoid probate is to own the property jointly with rights of survivorship with another individual. It can be your spouse or child but it should always be someone you can trust. When you hold the property jointly with another person, the property passes to that person automatically outside of your probate estate.

The second way to avoid probate is to name a beneficiary to a life insurance contract, IRA, 401(k), pension or set up payable-on-death bank account. You generally want to name a primary beneficiary and a contingent beneficiary in the event that the primary beneficiary predeceases you.

The third way to avoid probate is to create revocable trust (i.e. living trust). A revocable trust is a document can you can alter, amend or revoke at anytime. Therefore, you are treated as the owner. The trust names you as the trustee and beneficiary during your lifetime; therefore, the property held in the trust is yours, and you can buy, sell or spend all of the assets as you wish during your lifetime.

Upon your death, the trust becomes irrevocable, and the person you name as a successor trustee takes control of assets and distributes your property according to the terms set under the trust act. In other words, your trust acts as the roadmap of where you want your property to go, and it cannot be changed after your death.

Since the revocable trust is not subject to probate, the distribution of your estate is private. The important thing to remember is that you need to transfer your assets into the trust during your lifetime, and those assets that are not transferred are subject to probate unless they are held either jointly or have a beneficiary.

By: Brett A. Kaufman, Esquire

Post-nuptial Agreements May Help You Plan for the Future

The use of a post-nuptial agreement, one that is entered into during marriage, often in consideration of continuing the marital relationship after a reconciliation, is becoming more and more common for married couples who want to define a future division of assets and liabilities. Couples want to know how assets are going to be split if things go bad between them.

Beware, however, the Massachusetts's courts and legislature have declined to determine whether post-nuptial agreements are void as against public policy.

The status of these post-nuptial agreements in Massachusetts is still unclear as no further decisions have been made on the issue since 1991.

The question is whether or not it makes sense to enter into such an agreement with a spouse in order to determine the future division of property and liabilities in the event of a divorce or death. The practical answer: having the agreement is better than not having the agreement in place. The cautious answer: make sure that you realize the Massachusetts courts have not yet decided how they will treat the agreements or if they will be upheld.

When preparing a post-nuptial agreement be mindful that the Supreme Judicial Court held the agreement must meet the threshold requirements of ante-nuptial and separation agreements. Therefore, in order to be valid a post nuptial agreement must first be:1) free from fraud or coercion, 2) fair and reasonable and 3) clearly agreed on by the parties involved.

In order to put your best foot forward in having these post-nuptial agreements upheld, parties should make full financial disclosure to each other, should have the agreement properly formalized in a fully executed contract by an attorney, and most importantly each spouse should have their own representation. This is not a time for spouses to be penny-wise and pound-foolish. They may be able to save time, money and anguish in the event of a death or divorce with some proper planning today.