Estate Planning Bits

What is hospice care and what are the benefits?

Hospice care is a program that exists for end of life situations. Not only do hospice caregivers provide good medical and physical care, but there is also significant palliative therapy which includes counseling, spiritual support, and emotional as well as pain management. Hospice care is provided not only to the patient, but also to benefit the patient’s family and friends, who are also experiencing emotional issues at that time, knowing that their loved one is terminally ill.

Hospice is generally available to a patient regardless of their age. However, that person must be diagnosed with an illness that generally limits life expectancy to 6 months or less. It is very difficult to estimate actual life expectancy, but as long as the diagnosis is made, it is usually accepted by the governmental authority making payment on behalf of the patient.

For example, Medicare will cover hospice services when a patient is certified by the physician that he or she qualifies for the care for a period of ninety (90) days. This is known as the election period. However, this period may be extended endlessly in additional sixty (60) day election period increments certified by the physician. Of course, if a patient is recovering and continues to improve, then hospice care may be discontinued.

In order to qualify for coverage, the patient or the designee under a valid health proxy or medical directive must sign a statement requesting hospice care and therapy. This basically means that they are foregoing any aggressive treatment to cure the disease or illness and merely receive palliative (pain relief) care.

Nevertheless, a patient may change his or her mind and opt out of hospice care, thereby revoking the election. Benefits will then stop, and the patient may then opt for other treatment. If that treatment doesn’t work, the patient may again elect to sign on to hospice care.

In a hospice situation, it is usually the family member that is deemed to be the primary caregiver, and hospice care is then provided to the patient. Normally, there is a team of physician, nurse, home health aid, social worker, and other care management individuals who assist a primary caregiver in helping make decisions for the patient if incapacitated. If the patient is competent, then he or she will work with the team in making decisions until he or she can’t make them any longer.

Just because the patient has elected palliative care does not mean that other services can’t be utilized. Physical therapy, direct nursing care, medical services, occupational therapy and continued review of medications all remain available treatment options to focus on pain management and comfort care. Medicare also attends to the payment of prescriptions with a nominal co-pay if hospice has been elected.

It is often beneficial to have social workers provide counseling to the family as to what exactly is occurring at this time, including pre-bereavement counseling, as well as counseling as to how to deal with and speak to the patient at that time.

Another major benefit of hospice care is the availability of respite care that may be provided to family members, who are the primary caregivers at home, so that they will not be required to be “on duty” 24/7 days. Since many individuals prefer to be at home rather than in a nursing home or hospital, this setting is usually preferable for all parties, socially, physically, and financially.

It should also be noted, however, that if the patient is receiving hospice at a nursing home, then hospice does not pay for the nursing home expenses unless except those considered respite care. Medicaid may be available to pay for the care for a resident who otherwise qualifies for assistance.

By: Hyman G. Darling, Esquire

Annuities – new Federal restrictions limit their asset protection potential

Annuity can be a wonderful product in some cases. It is important to note however, that they are not right for everyone. Many sellers of annuities including financial advisors, brokers, banks, insurance companies, and sometimes other persons or entities who have licenses to sell products, recommend annuities to their clients.

In the past, an annuity was sold primarily for one of two reasons. One is for the purpose of deferring income. A deferred annuity accumulates earnings tax deferred until the funds are withdrawn either by the owner or the beneficiary. The other type of annuity is sold as an immediate annuity where the owner receives income for either a certain period of years or guaranteed for his or her lifetime. This is beneficial if someone wishes to have a fixed income and sure that they have enough funds to live on for the rest of their life.

In the past, many annuities were sold with the underlying “guarantee” that if the owner became institutionalized, the funds would then be protected for long-term care or to assure that the funds would not have to be paid to the nursing home. The Deficit Reduction Act of 2005, which was passed in February of 2006, and is now more clearly understood with updated regulations and clarification, changes that.

Now, not only will the income interest of a single person have to be paid to the nursing home, but also, the beneficiary of the annuity must be changed to make the beneficiary the State if the owner has received Medicaid benefits. Therefore, the annuity income interest received by the owner during his or her lifetime is construed to be income, and this income must be paid to the nursing home as part of the patient paid amount.

Formerly, when the owner died, the beneficiary would be family, who would receive any remaining balance of the annuity. But now, the Federal government has ruled that the beneficiary must be the State Medicaid agency. Therefore, any funds left as the balance of an annuity must be paid to the State as reimbursement for the amount that the Medicaid agency paid for the recipient’s nursing home care.

While this amount may still be less than the individual would have paid privately, the significant benefit formerly reaped no longer exists. In many cases, however, this may be the only significant opportunity to save money in the unfortunate event of a nursing home institutionalization without any prior proper planning.

It is also very important to make sure that the person selling the annuity has a complete and full understanding of how the annuity must be established in order to qualify for benefits when they are needed. This includes proper ownership and beneficiary, as well as making sure that the annuity is irrevocable and non-assignable. Care should be taken when purchasing the annuity to ensure that not only the advisor has a good working knowledge of annuities, but also that good legal and tax counsel is obtained to cover all other related legal and tax issues, as well as making sure that the Medicaid authorities will approve the annuity when an application is made for benefits.

By: Hyman G. Darling, Esquire

Beware gifts, gift tax and their Medicaid implications

In prior blog posts, issues regarding gifts have been mentioned several times. It is well worth repeating, as the rules for gifts are confusing and the IRS publications are somewhat less than clear.

The general rule, (always with exceptions, of course,) is that you may gift a certain amount of money free and clear every year to as many individuals as you want without having to report these gifts. In 2007, this amount is $12,000 per donee per year, and this is inclusive of birthday and Christmas presents.

Once this sum is exceeded, then a gift tax return must be filed. However, you must report the total gift even if no tax is due because everybody has an additional $1,000,000 lifetime exclusion besides the annual exclusion gifts of $12,000 per person. Keep in mind that the donee need not be related but could be your child, grandchild, step-child, in-law or an unrelated person. This does not include gifts for charitable purposes, which are in a different category and are not limited to the $12,000 exclusion.

If you make a gift to your grandchild of $12,000, and he uses the funds to pay for education, this is not a charitable deduction because there is value received for the gift. Likewise, if you pay the college the sum of $12,000, this is also not a charitable deduction, since your grandchild is obtaining education for the sum paid.

You should also keep in mind that you may make a payment for medical expenses and/or educational expenses to or for the benefit of your grandchild without utilizing the $12,000 exclusion, which is an additional amount that may be gifted if so desired. However, you must make the payment directly to the institution or medical provider, as these funds may not be gifted directly to your grandchild.

While the rule with gifts is sometimes complicated, and there are certainly rules, exemptions and options available, it must be noted that the gift made, regardless of the amount, is still a disqualifying transfer for Medicaid purposes if you need to apply for long-term care assistance within five years of the gift. To say it another way, the gift tax rules are totally different than those of the Medicaid rules, and even though you may gift up to $12,000 a year free of gift tax, this rule has nothing to do with Medicaid rules and any gift made within five years of your institutionalization is a disqualifying gift regardless of whether the amount is less than or greater than $12,000.

Therefore, while the rule of gifts are important for tax purposes, there is also a totally separate and distinct rule for Medicaid purposes, and as stated, the two divisions of the government do not operate in sync as to the eventual effect of the gift. Caution should be used when any older or ill person is making a gift to determine all consequences, whether personal or tax related, and how they relate to long-term care situations, even if in advance of institutionalization.

By: Hyman G. Darling, Esquire

Time to start spending your assets instead of worrying about passing it on to your heirs

It has been reported that a 65-year-old man has a 50% chance of celebrating his 85th birthday and a 25% chance of living beyond age 92. Women live even longer on the average, and for a 65-year-old married couple, there is a 1 in 4 chance that at least one spouse will live beyond 97.

However, there is also the probability that 1 person out of every 4 over the age of 65 will spend some time in a nursing home. Regardless of whether someone spends one day or 7 years in a nursing home, long-term care is a factor in growing old. As we grow older there will be a greater likelihood that more of us will be required to have long-term care at home or in an institution.

Regardless, when most people are asked what they’re most concerned about as they grow old, most report a concern about having sufficient assets and income to live through retirement. Many of the older generation do not have significant pensions, IRAs or 401K plans, so they must spend and invest their assets according to the economy and the market. Their ability to make money is no longer reality, but when they were working, they were able to save significant funds because of their spending habits, which were commonly known as depression mentality.

If you’re getting up there in years, generating any additional funds is probably not a good reality and likelihood. Therefore, you should consider spending your money for yourself rather than saving it for long-term care or attempting to pass this wealth on to your kids and grandkids. Your core priority should be utilizing funds for your own lifetime, support and enjoyment, not any other person or entity.

Nevertheless, the older generation, or generation known as, “The greatest generation,” according to Tom Brokaw, will never be replaced. It is unfortunate that the next generation will be spending their parents and grandparents hard-earned money and also that the parents and grandparents are probably not reading this blog.

By: Hyman G. Darling, Esquire