Estate Planning, Medicaid Preparation, or Both?

 In our last article the discussion centered around the importance of planning in advance for the possibility of needing Medicaid in the future.  Essentially the idea being to plan for the worst, and hope for the best.  This type of forethought is imperative given that Medicaid requires planning to occur at least five years in advance of needing assistance with paying for the costs of home assisted living or long-term nursing care. The Medicaid Estate Recovery Program allows the government to place a lien on any real estate owned by the Medicaid recipient after death. If you are 55 years and older, and receive Medicaid coverage, your assets are subject to a Medicaid lien without the proper planning.  

Depending on the level of care needed, according to recent Genworth figures, the average cost of assisted living is $4,500 per month, and the average monthly cost of skilled nursing is $8,910. Failing to plan for how to pay for these costs can result in the loss of a family farm, or lack of sufficient care.  Planning ahead can ensure access to long-term healthcare without losing your farm, over-burdening family members, or ending up unable to access services when needed. The earlier you plan, the more techniques that are available to help you meet your goals of asset protection.  Not having a long-term estate plan could result in the loss of assets that must be sold in order to cover the increasingly high cost of care.  

There is a lot of overlap between general estate planning, which I believe everyone should implement, and the possibility to plan for Medicaid during that process.  I will discuss here the basic estate planning that every individual, especially individuals and families who run their own business such as farming, should consider.   

·         Advance Directives / Healthcare Power of Attorney:  In short, a power of attorney is a document in which you appoint a person (or persons) to make decisions on your behalf should you become unable to do so.  They are also only effective during your lifetime.  Advance Directives detail your preferences for end-of-life care.  A joint advance directive/healthcare power of attorney provides the opportunity for you to direct your preferences, while nominating the individual you trust to make medical and end-of-life care decisions on your behalf.  Powers of attorney are documents that everyone should consider, regardless of age.  I have seen numerous times where the absence of this type of appointment creates significant discord among family members. While you have the capacity to make that decision, you can and should be the one to provide directions as to your healthcare for the possibility of that time or day arriving when you may not be able to.  

·         Financial Powers of Attorney: This document is much more important than many individuals realize.  The person appointed steps into your shoes to make all financial related decisions on your behalf.  This includes, but is not limited to, check writing, accessing financial accounts, selling real estate, and/or running your business should you be unable to do so.  It becomes quickly apparent how important this nominated individual is for anybody, but especially when talking about the person who will make all decisions on your behalf about the operation of your interest in any business, including your farm, should you become incapacitated.  This is also the person who is tasked with being involved with the planning for, spending down of assets, and application for Medicaid should you need long-term nursing care.  They will also need to work well together with your healthcare power of attorney, if those are different individuals, as nursing home placement is healthcare related, while the related expense of that care falls under the duties of the financial power of attorney.    Take note, most states do NOT view your spouse as being the best person to serve this role, nor are they automatically placed in this role if you do not have a power of attorney.  In this case, you generally have to file a guardianship action to become your spouse’s guardian.  And, it can get very contentious quickly if there is another family member who thinks they are better suited to serve.  This leads to contested guardianship proceedings, which are essentially a fight to have control over a person’s financial life.

 

·         Last Will & Testament: A Last Will & Testament states who assumes ownership of your assets and belongings after you die. If you don't write a will, your assets are distributed according to plans outlined in your state's laws. In your Will, you also choose an Executor or Personal Representative. This is the person who will make sure the terms of your Will are carried out exactly as you want.  With just a Will in place, your estate may require probate, but that depends on assets and other planning techniques that may be implemented.    

·         Revocable Living Trust: A Revocable Living Trust allows you to take assets you own and place them into the ownership of a Trust you create during your lifetime. The Trust owns your assets, and you manage them while you are alive.  After your death, the Trustee—the person you choose to manage the Trust when you can no longer do so—distributes the assets to the beneficiaries you have chosen. A Trust is private and typically does not need to go through probate.  However, it is a common misconception that assets held in a Revocable Living Trust are exempt from being spent down for Medicaid purposes.  This is not the case.  While a revocable trust can be a useful planning tool to avoid probate and provide directions, there are other considerations to be taken when deciding which assets are funded to such a trust. 

·         Irrevocable Trust:  An Irrevocable Trust is sometimes referred to as a Medicaid Asset Protection Trust. The individual who creates this type of trust is the Grantor or Settlor, but there must be another individual named Trustee who manages the trust and controls the assets within it during your lifetime. With an Irrevocable Trust this must be someone other than the Grantor or their spouse, such as an adult child or other relative.  The Trust must be irrevocable for exemption from Medicaid’s asset limit. This means that the Trust cannot be cancelled, or in many ways changed.  This type of Trust is subject to a five-year lookback period for any assets transferred, and therefore requires advance planning considerations.  Putting assets in an Irrevocable Trust not only allows one to meet Medicaid’s asset limit without “spending down” assets, but also protects the assets for the beneficiaries listed by the Trustee upon your passing. This means the assets are safe from Medicaid estate recovery.  This type of trust is a useful planning tool, but is also normally used in conjunction with other tools due to its restrictive nature, and is dependent on each families’ individual needs and wants, age, and current health challenges.    

·         Limited Liability Company (LLC): An LLC is an excellent tool for holding and managing a family farm. An LLC allows for shared ownership, a clearly defined management structure and, as the name implies, liability limited to the assets of the company.  LLCs are extremely flexible entities that allow transitioning farmers to maintain a level of control of their farm operation while simultaneously conducting a gradual transfer of farm ownership to their children.  For Medicaid purposes, if the LLC is income producing, it also allows for the farm ground to be exempt when applying for Medicaid.  Upon your passing, the LLC can then be passed directly to the heirs in your Trust, and by avoiding the probate process, you also prevent Medicaid from asserting a lien against the assets of the LLC, including your farm ground. This type of planning provides numerous benefits to you during your lifetime, and your family upon your passing, while also working to minimize your exposure to being forced to sell your farm to pay for assisted living or nursing home care.   

The above provides a lot of information, and each families’ situation is unique.  The best way to ensure you are prepared should the need arise for long-term care is to sit down and discuss your circumstances with an attorney who understands the specific needs of farm families.  There are also details such as age, or the health challenges of a spouse or single individual, which will factor into your specific planning.  As you can see, general estate planning and Medicaid planning are often intertwined and should be planned for collaboratively.  Next time I will discuss how the Medicaid process application works, and the often-overlooked assistance available for families through that process.

John J. Schwarz, II, is a lifelong farmer and has been an agricultural law attorney for 17 years and is passionate about helping farm families establish succession plans. Natalie J. Boocher is a long-time farm elder law and Medicaid planning attorney helping farmers protect their farms from the nursing homes and Medicaid. Both can be reached at 574-643-9999 and www.thefarmlawyer.com.

These articles are for general informational purposes only and do not constitute an attorney-client relationship or specific legal advice.