Law Office of Thomas J. Swenson
U.S. and International Wealth Building and Wealth Preservation
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Elder Law and Medicaid Planning.  The main goal of elder law planning is the long-term financial security, comfort and health of individuals and couples in their advanced years. An ancillary concern is the preservation of wealth for beneficiaries, for example, for children, grandchildren, and charities.

General Durable Power of Attorney (PoA).  This document should be in place for a person of any age, but particularly for older persons. It authorizes the power-of-attorney holder (the agent) to make financial decisions on behalf of the principal (the person granting the power) during the principal’s life. A standing PoA goes into effect immediately upon signing. A springing PoA goes into effect upon the occurrence of some event, such as incapacity of the principal. With a general PoA, the agent can immediately access and use the principal’s assets and resources for the principal’s benefit when the principal is incapable of acting on his own. Without a PoA (or an equivalent), only a court (not even a child or other close relative) could legally access and use an individual’s assets. The principal may revoke a durable PoA at any time.

Medical Durable Power of Attorney.  With this document, a principal authorizes an agent to make medical decisions on behalf of the principal when the principal is incapacitated.

Advanced Health Care Directive (Living Will).  This document is used to make one’s wishes known about the type of medical treatment one wants and does not want.

Will.  Upon an individual’s death, a Will directs the executor how to dispose of the deceased person’s estate (assets and possessions). Property disposed of through a Will must go through “probate”, a formal legal proceeding in a probate court. Most states have simplified probate procedures for smaller estates (e.g., less than $1 million).

Revocable Living Trust.  A revocable living trust formally holds title to the grantor’s assets (e.g., homes, investment accounts, business property), but the grantor (person who forms and funds the trust) can remain in control as trustee. When the grantor-trustee resigns or dies, a successor trustee manages the trust. The trust is designed to benefit the grantor (or grantor and spouse) while living.  Upon death of the grantor, the trust language directs the trustee how to manage and distribute trust assets and income for the grantor’s beneficiaries.  Since assets are already owned in trust, they do not need to undergo legal probate proceedings or cumbersome transfers of title.

Irrevocable Trust.  Irrevocable trusts are useful for tax-planning and asset protection. Typically, the grantor allocates some or all of his lifetime exemptions for gift and estate tax and generation-skipping transfer tax (GSTT) to assets contributed to the trust. In this manner, all trust assets pass outside of the estate of the grantor, and generations of beneficiaries avoid estate and GST taxes as long as the trust exists, for up to hundreds of years.

Long-Term Care Insurance. For those who can afford it, long-term care insurance provides substantial benefits, usually for three or five years. Full-time private home care or nursing home care costs about $70,000 to $100,000 per year.  Premiums for long-term care vary depending on the age at which a person begins and continues coverage. For example, an individual starting coverage at age 50 could expect to pay annual premiums of about $3,000, while an individual starting coverage at age 65 would pay about $5,000 annual premiums.  Colorado and most other states have so-called Partnership programs by which certain long-term care insurance policies qualify for federal and state tax incentives and provide more favorable Medicaid rules.

Insurance Products with Lifetime Benefits Riders. Many modern life insurance and annuity policies, designed to provide a secure lifetime income stream and/or a death benefit, also include policy riders that provide long-term care or so-called living benefits (e.g., for chronic/serious/terminal illness).

Medicaid Planning. Long-term care at home or in a nursing home is expensive. State Medicaid programs generally provide long-term care benefits to an individual who qualifies. Medicaid is a means-based assistance program in each of the federal states.  The general rule is that a person must spend down all of his principal and income before qualifying for Medicaid. But, what if a person has a healthy spouse who still needs a home and resources to survive? Or, an individual or couple might want to preserve some of the assets earned and saved over a lifetime for children, rather than have all of it virtually vaporize in just a few short years due to long-term care costs. One possible method to preserve assets is to purchase long-term care insurance, as outlined above. Another approach is to use a Medicaid Asset Protection Trust.

Medicaid Asset Protection Trust (MAPT).  A grantor transfers assets irrevocably into an MAPT, also referred to as an Irrevocable Income-Only Trust (IIOT). The trustee (who is not the grantor) has the power to distribute trust income to the grantor and his spouse, but he may not distribute any of the trust principal to the grantor or spouse. The trustee may, however, distribute principal to other beneficiaries, such as children of the grantor. There is a five-year look-back period for any assets contributed to the trust, which means there is a penalty if the grantor applies for Medicaid nursing-home assistance within five years of funding the trust. There is a 3-year look-back if the grantor applies for Medicaid home care. The usual income and resource limitations still apply to a Medicaid applicant and spouse, but the principal in the trust would not be included in the calculations and remains protected against collection by Medicaid.

Various other techniques are useful for shielding the income and resources of a Medicaid patient and his/her spouse. These include Pooled Income Trusts, Spousal Refusal, Medicaid annuities, and family caregiver agreements.

A basic rule of Medicaid planning is that there is no look-back period for transfers of assets between spouses. Also, there is no look-back period for transfers for fair value, that is, for payment of market value for goods and services.

7-Medicaid IIOT