by Herbert D. Hinkle, Esq., and Eileen W. Siegeltuch, Esq.
What follows is a thumbnail sketch of standard elder law basics with additional points that apply to parents of a person with a significant disability.
Surrogate Decision Making
Many parents ask the questions: “Who will handle my affairs when I am unable to do so myself? How can I designate someone to make both financial and healthcare decisions? ”
Typically, the answer is a durable power of attorney – naming someone to handle your financial affairs and a medical directive naming someone to make health care decisions for you. These documents can also serve to delegate guardianship for your son or daughter with disabilities, and can memorialize your views regarding care and treatment for your child.
In some cases a living trust is a good idea to allow professional management of your assets and to avoid probate.
Estate Planning
Additionally, in an estate plan consideration must be given to both state and federal death taxes. The federal situation is especially puzzling because in 2013 gift and estate tax deductions will return to the 2001 level of $1 million, unless Congress acts.
To eliminate or reduce such taxes, sometimes devices like a credit shelter trust for a surviving spouse or an irrevocable life insurance trust for a spouse and descendants are indicated. Also, you might consider a dynasty trust that will allow, for example, the payment of education costs over many generations.
Long Term Care
All adults, especially those with a child with disabilities should ask: “What will I need to continue living in my home as I age and what will this cost? Should I move to an assisted living or continuing care community? What are the requirements and costs associated with such programs?” The options must be reviewed and a plan established with adequate funding. Consideration should be given to long-term care insurance.
Medicaid Eligibility
Medicare will not pay for long-term nursing home care. The methods of financing such care are your personal funds, long-term care insurance and Medicaid. To be Medicaid eligible, your assets cannot exceed more that a few thousand dollars. Assets can be given away but this requires planning and even if successful, it might result in sub-standard care. Medicaid transfer rules penalize transfers made within 5 years of seeking eligibility (technically New Jersey is still using the old 3 year rule but this is about to change if it has not done so already).
A parent of a child with a disability can transfer assets to that child and immediately qualify for Medicaid. However, the assets must be transferred to the right kind of trust, often called a payback trust. There are several other safe harbor rules that will be discussed in future articles.
Transferring assets can have unexpected gift and income tax consequences which must be carefully considered. To illustrate: suppose you transfer a home worth $500,000 to your children in anticipation of future Medicaid eligibility. Suppose the home was purchased for $40,000. When someday your children sell the home, they will incur a capital gain of the difference between what you paid for the property and the net proceeds from the sale. The capital gain can be eliminated with proper planning but is often overlooked by people who act without professional advice.
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Hinkle, Fingles & Prior attorneys are available to speak to your organization or constituents on a wide variety of relevant disability topics.