Retirement Friendly Legal Planning
Isnt it curious that if we fear nursing homes so much, why are nursing homes full, and new ones keep popping up? What plans do we make to avoid going broke or ending up in a nursing home other than hoping, wishing, thinking, and praying (loudly) that we are lucky enough to avoid these two fates?
We are all aging, but not necessarily aging well. One out of eight of us over the age of sixty-five (65), and one out of two of us over the age of eighty-five (85) will be dealing with incapacity issues which will render us unable to care for our own needs independently. That is where nursing homes come in, and the fact that these long-term care costs will only be covered minimally by our health insurance, leaves even modest size estates vulnerable to getting decimated paying for these costs.
If you are in the camp that aspires to not spending any of your retirement years in a nursing home, and seeks to avoid spending your hard-earned assets on long-term care costs, a good starting point will be to look at your estate plan and understand the inadequacies of that plan. Outlined below is a primer discussing how to approach estate planning differently now that you are either retired or actively thinking about retirement.
Traditional Estate Planning and Its Inadequacies
Estate Tax avoidance arguably is the biggest motivator to move one to engage in estate planning. Others find it compelling to provide the legal framework necessary to spare their surviving loved ones the angst and frustrations that can come when one becomes incapacitated without having ever executed powers of attorney (subjecting their estates and loved ones through the expensive, complicated and frustrating journey of securing a guardianship) or when one dies without a will leaving the loved ones scrambling to figure out what is in the estate and how it is to be distributed. Incapacity and death inevitably affect all family members, sometimes with devastating results. Traditional Estate Planning and its Inadequacies is based on the misguided notion that the only issue you have to worry about is the inconvenience and costs your heirs will face as a result of your demise. Estate planning involves preparation of wills or trusts, powers of attorney, living wills, community property agreements or property status agreements, directive to physicians, directive for disposition of remains, among other documents. These documents are generally based on the notion that one day you will go to sleep and never wake up, and the biggest issue you need to address is to make it easier for your loved ones to administer your estate. To be fair, traditional estate planning does cover the other possibility of you becoming incapacitated, and is under the notion that your agents will need to have the authority to act on your behalf, but it assumes that your agents will have the skills and experience necessary to make very difficult and complicated decisions that have to do with your health care needs.
Long-Term Care Issues Generally Not Covered by Traditional Estate Planning Solutions
This does not mean that traditional estate plans are not good; they just may not be appropriate for your particular needs. Estate tax issues will no longer touch most estates. In a climate of ever-increasing estate tax exemption limits, an estate currently valued at up to $4,000,000 will easily be able to avoid any incidence of estate taxes. The real threat to an estate today, therefore, is not the incidence of estate tax. Rather, it is the threat of uncovered long-term care costs which most of us will face before we pass away. The reality today is that one in eight people over the age of sixty-five, and one in two people over the age of eighty-five will have to deal with dementia related incapacities, which neither Medicare nor any health insurance will cover, exposing the estate to cover these very expensive and sometimes lengthy chronic care needs. Today, many estates will be depleted paying for these costs, rendering the owner of a once healthy estate dependent on Medicaid. Once on Medicaid, you will be able to live, as Medicaid will provide food, medicine, and shelter, but make no mistake that Medicaid will not be concerned about the quality of life you will experience because all your assets have been depleted.
Although traditional estate planning covers the possibility of you becoming incapacitated by offering, as a solution, your right to execute powers of attorney, it does so under the notion that all your agents who have the authority to act on your behalf will have the skills and experience necessary to make very difficult and complicated decisions concerning your health care needs. The only decision you are asked to make, under traditional estate planning schemes, is whether or not you would desire artificial means of life support should you find yourself unable to sustain life without these interventions. The truth is that your agents may not always have the skills or knowledge to make decisions about your quality of life, nor do they always have the time necessary to study the issues and make informed decisions. Consequently, your quality of life can suffer and, equally important, your loved ones quality of life can also suffer as they try to fit complicated issues that needs their attention into their own busy life.
What You Want Your Estate Plan to Deliver
Understanding that the role of estate planning documents is to evaluate potential threats to your estate and afford protective measures, they fall short of providing any real guidance or assistance to those you leave in charge on how the protected assets should be used to look after your quality of life as well as those whose lives are impacted by you. In the context of long-term care issues we face today your estate plan should help you to protect your assets from uncovered long-term care costs while requiring that these protected assets be used to help keep you out of nursing homes without making you a burden on those you entrust your estate and health care decisions to.
Issues a Good Estate Plan Should Consider
Long-term Care Costs, Medicare, VA, and Medicaid.
Medicare has very limited coverage for long-term care needs you will likely face during your retirement years. Simply stated, Medicare will cover those bills that come from conditions for which there is a medical cure. For example, Medicare will cover, quite generously, treatment costs stemming from cancer, heart attack, stroke, blood pressure issues, broken bones, etc. But, if what you have cannot be addressed by medicine, then Medicare will generally have no coverage for the condition. Examples of such conditions include incapacity issues relating to Alzheimers, Parkinsons, Dementia, or being lucky to live long enough to blow out a hundred candles on your birthday cake, yet be too frail to have the wind to blow out the first three candles let alone the rest of them. These conditions require you to seek the assistance of others to help you live. You will find some financial assistance under either the VA program or Medicaid; however, neither VA nor Medicaid will come to your rescue if you have more than a minimal amount of assets to your name. This means that if you have engaged in traditional estate planning where you leave your estate to your spouse or to another who is incapacitated, you have an outdated estate plan. The reasons are discussed below.
Quality of Life and the Nursing Home Issue.
As discussed in greater detail below, the typical plan to deal with incapacity has to do with the preparation of a Power of Attorney whereby you will delegate decision-making authority to someone you love and trust to do the right thing. When you become incapacitated your trusted appointee will likely turn to the doctor or the clergy for advice on what to do next. Both these professionals are generally ill-equipped to understand how to keep people at home. In the case of doctors, they simply do not have the time to evaluate all that can be done to keep you out of a nursing home and at home. It takes investigation which takes time. Busy doctors have little time, so they are more likely to advise your appointee to look into assisted living or nursing home situations. Your chosen appointee will, more likely than not, follow the directions. Ask yourself, if you were expected to live less than six months why do people immediately look to hospice as a way to keep you at home? But if you are expected to live more than six months, there is no mention of hospice. Hospice is simply a service where individuals have training and experience in understanding the services that can be tapped in order to keep you safe and comfortable at home. Why not go to these same professionals and ask them to develop a plan of care to allow you to age at home even if you have a life span of more than six months. Read on and you will know where to find these professionals, and how to properly prepare a Power of Attorney that prevents making you a burden on your appointee.
A Long-term Care Friendly Estate Plan
Last Will and Testament.
To begin with, a proper Estate Plan should recognize that a primary issue to be considered is the viability and appropriateness of Medicaid benefits. Knowing that qualification for Medicaid benefits requires the applicant to have no more than $2,000 to his/her name, and using the Community Property Laws to your advantage, your estate plan deviates from the normal procedure of directing your share of the community estate to the surviving spouse and directs it instead to a Safe Harbor Trust, also called the Special Needs Trust, created for the exclusive benefit of your surviving spouse. Assets that are directed to this trust will not be counted as owned by your surviving spouse and therefore will not need to be spent down to the $2,000 level for your surviving spouse to qualify for Medicaid to pay for your long-term care services. Understanding that the trustees you have named may not necessarily have the knowledge or skills to make an informed decision about the types of services available to you with the intent of keeping you at home, or in a lesser restrictive environment than the nursing home, your trust requires that your trustee engage the services of a Geriatric Care Manager who will be able to assist the trustee in ascertaining your needs and how to best address those needs without resorting to drastic measures such as nursing home placement. The Geriatric Care Manager is compensated with the assets that have been protected by the Safe Harbor Trust; thus, is not a burden to your family members. Your family members reap additional benefits as they do not have to spend the extraordinary amount of time and effort that is needed to understand these issues.
Powers of Attorney.
Next, your Power of Attorney should make similar provisions. They should anticipate that there may come a time when you are unable to care for your own needs and may need your agent to step in and provide the necessary care. As discussed above, your agent may not have the training, skills, or knowledge to triage the situation, and may not know what can be done to provide you the needed care at home or in a setting other than a nursing home. They may also find themselves struggling to find the time and resources necessary to monitor your care once you are being cared for by others, or they may not have the skills to know if you are being over medicated, ill-treated or the like. To that end, your Power of Attorney provides that if your agent feels you are unable to manage your own care needs, they should use the assets in the estate to hire the services of a Geriatric Care Manager to, at the very least, get an initial assessment and care plan prepared so the agent will have some direction as to the resources available to manage your quality of life issues.
Your Power of Attorney should also prohibit your agent from being able to agree to sign a voluntary arbitration agreement. This agreements is generally placed in front of you or your family members when your mind is on other more stressful matters stemming from having to move to an assisted living facility or a nursing home, thus losing your freedom. The arbitration agreement is meant to have you give up your right to sue the facility in case of negligence on their part which leads to your injury. Usually, it is not in your best interest to enter into such an agreement. In the majority of cases it is your agent who will sign the papers to admit you to the facility. Taking away the authority of your agent to enter into such an agreement makes the arbitration agreement, if signed by your agents, null and void.
Finally, in light of the Shiavo case (Florida) where Terri Shiavo was in a coma and a battle ensued over whether or not she should be allowed to have the life support system removed, we have revised our Living Wills. The Shiavo battle lasted years and culminated in a high stakes drama that took the case from the Florida Court system all the way to the U.S. Supreme Court, and from there to the Legislature and the White House. A good Living Will will take this into account and refer to the thinking that not only should one look at the medical status of the person (whether the person is in a persistive vegetative state or terminally ill) but should also look to quality of life indicators when making a determination whether or not to allow the removal of the artificial means of life support.
In summary, a properly crafted Estate Plan is as much about your quality of life issues as it is about making sure your heirs and family members will not have to suffer through either the court system or a bureaucracy because of lack of a proper legal authority.
Abridged version 2011 - Rajiv Nagaich