I Can’t Afford an Elder Care Lawyer…Can I?

Many of us are worried about the high cost of lawyers, and feel that we can now go online and find all the free forms and free advice we need. While it is admirable to arm oneself with information, the field of elder law and Medicaid planning is not a do-it-yourself project!

One simple example: You find a form for a power of attorney online and then sign it, or have your parent sign it. It was either free or $10, so you feel pretty good about it. After all, didn’t you just save a big legal fee? But what you failed to notice is that several critical provisions were omitted from this “generic” power of attorney form, and when the time comes that you need to use the form, it’s too late to get it fixed. Your mother may now be incapacitated and unable to sign a new power of attorney form, forcing you to hire an attorney to represent you in a guardianship/conservatorship proceeding. So now you’re faced with spending thousands of dollars, while the attorney’s fee for preparing his top-of-the-line durable general power of attorney may have been only $150 or so.

Another example is with Medicaid planning. You heard or read somewhere that it’s a good idea to have your father gift away his assets, so he’ll be “poor” when he applies for Medicaid, thus protecting his money. But you didn’t know about the recent change in the federal laws regarding calculation of penalties. So now your father is disqualified from Medicaid eligibility for many months or years, when through proper and careful planning by a Medicaid specialist attorney he could easily have saved half if not all of your father’s money!

Attorney Billing Methods

It should be noted that not all elder care attorneys charge the same amount or even use the same method to calculate their fees. First, there’s the traditional method of billing, which is to charge by the hour. Most attorneys charge in 1/10 of an hour increments x their hourly rate. Be aware that although an inexperienced attorney will usually have a lower hourly rate than one who has spent many years concentrating in this area of the law, the inexperienced attorney will undoubtedly take a lot longer to figure out what to do and do it. So the fees may not be much different at the end of your case, and you will have paid for the education of the less experienced lawyer.

A second billing method is to charge a flat fee for a given project. The advantage to the client is that she knows up front what the cost will be and does not have to watch the clock as carefully. The advantage to the attorney is that he may be able to be rewarded for efficiency and hopefully be compensated for the many unpaid hours spent crafting effective forms that solve his client’s problems.

A third approach combines the two, so that the arrangement is $X for the following documents or legal work, which includes a maximum of Y number of hours. The idea here is that if something comes up after the project gets started, or the client is extremely demanding, requiring multiple changes to documents, asking a zillion questions, etc., the attorney won’t get stuck working for free.

In any case, you as the potential client have every right to ask the attorney you are considering hiring what the cost might be for your legal work. Since the facts of every case differ, it may be impossible for the attorney to give you an exact figure, but you should at least find out the hourly rate and what other similar cases have cost. Again, take into consideration the experience and expertise of the attorney you are considering. It’s no bargain if you saved $1,000 in legal fees if a less-than-optimal document or plan winds up costing you $10,000 several years from now!

What is “Elder Law,” Anyway?

The field of “elder law” (or “elderlaw” as it is also known) is a relatively new one. Before the term existed, attorneys who currently specialize in elderlaw generally worked as estate planning, disability, or government benefits attorneys. Over time, it began to be recognized as a separate and distinct category of legal knowledge. Soon state boards of specialization were recognizing elderlaw as a separate specialty. The only national organization devoted to elderlaw, the National Academy of Elder Law Attorneys (www.NAELA.org), was founded in 1988 to focus on the legal needs of the elderly.

Attorneys who desire to work with the elderly and the disabled have to have a working familiarity with the following:

• federal and state government benefits programs for the elderly and disabled, such as Medicaid, Medicare, SSI, and SSDI
• the law of wills
• the law of trusts
• real estate law
• the rights of spouses
• contract law
• intestacy rules
• estate tax
• income tax

–and, they have to be darn good in math, since they often have to create spreadsheets and run complex calculations as part of their benefits planning!

In addition to the above, an elderlaw attorney must be able to communicate with a senior who may not be as sharp as he or she once was, and be able to explain the intricasies of a complex and byzantine system of rules, regulations and laws to the entire family.

Finally, it helps if the elderlaw attorney is a good psychologist, since sometimes the “best” solution is not necessarily the one the attorney might choose for himself, but the one that suits the particular dynamics and cultural background of the client’s family. Being able to work with multiple generations while still clearly representing the actual “client” is a great asset to an experienced elderlaw attorney.

Medicaid - Should We Just Go Ahead and Sell the House?

“My mother, who is a widow, has no savings but owns a home, valued at $200,000, and just entered a nursing home. The cost is $6,000 a month! The only way she can afford that is if we sell her house…If we don’t sell her house, the state will take it anyway when she dies, right? So what difference does it make?”

My client was in a panic, and while selling the home seemed like the only solution, I suggested the following alternative: Don’t sell the house, but instead apply for Medicaid immediately. If mom’s only asset is her home, she will definitely qualify (assuming her income isn’t unusually high).

“But if the state will take her home after her death, why not just sell it now?” my client persisted.

First of all, the state doesn’t “take” a person’s home, either during their lifetime or following their death. What happens, as a general rule, is that following the Medicaid recipient’s death, the state will make a claim against the estate of the deceased recipient, for the total amount of Medicaid benefits paid out for their care, during their lifetime. (Note that a couple of states still do not seek reimbursement following a recipient’s death, even though federal law requires it.)

Thus, if mom only lives for one year after being in the nursing home, and the Medicaid “bill” for her stay in the nursing home for that one year is, say, $50,000, then the family has a choice: keep the house and come up with the $50,000 themselves, or sell the house, pay the state the $50,000, and then divide up the balance of the sale proceeds among the family members, as provided by mom’s will.

What if mom lives for many years in the nursing home, so that the bill from Medicaid exceeds the value of the house? In that case, the state is stuck—the most it can get is the net sales proceeds from the sale of the house. It can’t go after the children for the balance.

Another reason not to sell the house: If mom applies for Medicaid now, and qualifies, the nursing home will be paid the state “Medicaid reimbursement” rate, which is always a good bit lower than the private pay rate. The actual amount the nursing home must accept varies from nursing home to nursing home, so there is no general guideline. However, assume the Medicaid rate is only $4,500/month, instead of $6,000/month. If mom dies after one year, the family may indeed have to sell the house to raise the money to reimburse the state, but it will only owe 12 x $4,500 ($54,000) vs. what it would have paid had it sold the house and paid the nursing home privately, i.e., 12 x $6,000 ($72,000). Thus, the family saved $18,000 by NOT selling the house! And that savings would increase for every additional month mom lives.

So the longer mom lives in the nursing home, the more the family will save by doing this. However, there is an upper limit: If mom lives long enough, so that the Medicaid bill exceeds the full value of the house, then in effect it will have made no difference whether the house was sold and she paid privately, or kept the house and got on Medicaid. In either case the house will have to be sold to pay for her care, leaving nothing for the family. So her age, health, and life expectancy enter into the equation.

As you can see, some careful thought must be given to this decision. What I did not discuss is the possibility of selling the house, gifting a portion of the proceeds, purchasing an annuity with some of the proceeds, adding a child’s name to the deed, transferring a remainder interest in the house to a child, transferring the house (or a remainder interest in the house) to an irrevocable trust, the interaction of the spousal protection rules if mom is married, the limitation on the amount of equity mom can protect in her house, etc., etc. To explore these possibilities, consult an experienced elder law attorney in your locale. To get a running start, however, see my book, “How to Protect Your Family’s Assets from Devastating Nursing Home Costs: Medicaid Secrets,” (available at www.MedicaidSecrets.com) which discusses all of these issues and more.

Medicaid Planning with an Irrevocable Trust

You know that you, your spouse, or a parent is facing a nursing home stay. It’s not tomorrow, but it’s not 20 years away, either. Is there a good technique to protect your assets so that the nursing home won’t wind up with your life savings? Actually, yes…it’s called an “irrevocable trust.” Let’s take a look at how it works.

An irrevocable trust is one that cannot be revoked, amended, or changed once it is signed. Do not confuse this with a “Living Trust” done for probate avoidance purposes; that type of trust is revocable and will not work for Medicaid planning. Your elder law attorney would draft the trust for you and then assist you in transferring some portion of your assets into the trust. (I am omitting many details of how the trust is to be drafted, set up, and funded. For a detailed discussion of such trusts in the Medicaid planning context, see my book, “How to Protect Your Family’s Assets from Devastating Nursing Home Costs: Medicaid Secrets.”)

A transfer into such a trust is considered a gift for Medicaid eligibility purposes. Thus, the usual “penalty period” and “lookback period” rules apply to the gifts into the trust the same as they would with an outright gift.

For example, assume you create your new trust and immediately transfer $180,000 into the name of the trust, leaving you with only minimal other countable assets. Assume you do this on January 1 of Year 1. Also assume that the state you live in has a “penalty divisor” of $5,000, meaning that there is one month’s penalty for every $5,000 worth of gifts.

Here’s how the rules play out:

Penalty Period. Since the amount of the gift was $180,000, if you went in to apply for Medicaid the next day, there would be a “penalty period” (i.e., period of time that you would be disqualified from receiving Medicaid assistance) of 36 months ($180,000 / $5,000 = 36).

Lookback Period. For any gift made on or after February 8, 2006, if you apply for Medicaid within 5 years of such gift, there will be imposed a penalty period. So in our example, if you apply for Medicaid at any time before January 2, Year 6, you will be faced with a 36-month penalty period that begins on the date you apply! That’s right—even if you make the gift today and apply for Medicaid in 4 1/2 years, you will have to wait another 3 years because of the penalty! “Gee, I could have just waited another 6 months and I’d be out from under the lookback period and have no penalty!” Exactly. So be careful of applying too early!

But what if you might need nursing home care prior to Year 6? All your money is tied up in the trust, so how can you pay for the nursing home? Essentially, your family members will have to pay your expenses for that period of time. (It may be possible for the trust to be drafted so that money in the trust can be distributed to your family members for this purpose, but this must be very carefully done in order to avoid serious trouble.)

In that case, the big question is, when do you apply for Medicaid? Of course, you must actually have a medical need for nursing home-level care in order to apply. But if you require nursing home care in Year 1 or Year 2 and apply for Medicaid at such time, there will be a 3-year penalty period from the date you apply. In other words, you will be eligible to re-apply for Medicaid in Year 4 (if you apply in Year 1) or Year 5 (if you apply in Year 2). Obviously that is better than waiting for the expiration of the entire 5-year lookback period, which won’t occur until Year 6.

However, if you don’t need nursing home care until at least Year 3, you are better off not applying for Medicaid until after the complete expiration of the lookback period, i.e., in Year 6. That’s because if you apply in, say, June of Year 3, you will still be disqualified for an additional 3 years, i.e., until June of Year 6 (instead of only until January of Year 6). And if you apply in Year 5, you won’t be eligible until some time in Year 8!

It’s important to remember that the numbers above only apply to this particular example. You must work out the details with your elder law attorney, since the optimal time to apply will be governed by your health, your other (non-trust) assets, your family’s ability to cover your expenses, the amount you gifted into the trust, your state’s penalty divisor.

NOTE: For more information on this topic and other Medicaid planning techniques, see my book “How to Protect Your Family’s Assets from Devastating Nursing Home Costs: Medicaid Secrets” (2008 Second Edition available here: www.MedicaidSecrets.com).