Common Law Marriage: Be Careful!

Back in the early days of our country, when justices of the peace and clergy were harder to find and the population more spread out, there arose the concept of a “common law” marriage. The basic idea was that if a man and a woman held themselves out to the community as married, and considered themselves to be husband and wife in all their dealings with the public and themselves, then the law would recognize them as such.

At the present time, only about a dozen states still recognize a common law marriage formed under their own laws. However, under the U.S. Constitution’s “full faith and credit” provision, a common law marriage valid in any one of these dozen states will be recognized as a legal marriage in all of the other states.

Unfortunately, because there is no piece of paper to point to, whether a couple will be recognized as married for purposes of state law (and hence federal law, which follows state law on this determination) is a facts and circumstances test.

Here are some of the factors that judges have looked at in making a determination that a couple were married at common law:

• living together
• holding themselves out as married to the general community
• exchange of wedding rings
• attending holiday celebrations and family gatherings together
• traveling together
• filing income taxes marked as married individuals
• completing medical records as married
• sharing domestic responsibilities

Here are some factors that weighed against a couple being considered in a common law marriage:

• the female’s reference to her partner as her “boyfriend” or “partner” to emergency medical personnel
• failure of one partner to indicate she was married when applying for a mortgage
• holding themselves as married only to a small circle of friends and co-workers but not the general community

Because tax returns are signed under the penalties of perjury, they are particularly persuasive to a court in making this determination.

Why is this important? There are many legal consequences, rights, and responsibilities that depend on a determination of marital status. For example:

• A surviving spouse is entitled to a certain percentage of a deceased spouse’s estate if the spouse died with no will; if declared to be unmarried, that surviving “spouse” gets nothing.
• A surviving spouse is entitled to a certain percentage of a deceased spouse’s estate if the spouse had a will but omitted or left little to the other “spouse”; this is called an “elective share” and could be as much as 50% of the deceased spouse’s estate.
• With larger estates, only a legal spouse can claim the unlimited marital deduction, saving thousands of dollars in estate taxes.
• Only legal spouses can file income taxes as “married filing jointly.”
• Only a legal spouse would have certain rights and access to medical records under federal and state laws.
• Only a legal spouse is entitled to the Social Security payments of a deceased spouse.

Sometimes it’s actually better not to be determined to be married. For example, a healthy spouse’s own assets must be “spent down” on a disabled spouse residing in a nursing home, before Medicaid coverage of the nursing home costs will be allowed. If the couple is not married, then only the nursing home partner’s assets are counted, protecting an unlimited amount of assets of the healthy partner.

As you can see, important monetary and other benefits turn on the legal determination of whether there was or was not a common law marriage. In most cases there are benefits to the spouse; in some cases there are disadvantages. In any case, this should be thought through by the couple so that they do not get caught unaware! If in doubt, the couple should go downtown and sign that little piece of paper indicating they are officially married. That would end all questions!

Setting Up a Special Needs Trust for a Disabled Relative

Many of us have a family member or close relative with a disability. We’d like to leave a portion of our estate to help this family member but are unsure how best to do this. Should we just make an outright gift? What about a trust? Let’s take a look at some of the options.

The simplest method of assisting the family member is an outright gift, either during lifetime or via our will. However, if the disabled individual is already receiving government benefits such as SSI (Supplemental Security Income) or Medicaid, additional assets could cause them to become disqualified from those programs. On the other hand, some programs such as SSDI (Social Security Disability Insurance) are not “means tested,” i.e., are not affected by the assets or income of the recipient.

Since a person may not need to receive “means-tested” benefits today but may require them in the future, the safest route is to leave them your gift inside a trust. The trustee of the trust will hold your money, invest it, and distribute it to your intended beneficiary as needed, without causing disqualification from government benefits.

Such a trust is called a Special Needs Trust or Supplemental Needs Trust, since it is designed to supplement—and not replace—government benefits. It can be created today and funded with money or other assets now. Such a trust is called an “inter vivos” trust. You can serve as the trustee or permit someone else to serve as trustee; the trust can be revocable or irrevocable; and you can retain power to change the ultimate distribution of the trust assets or not. All of these decisions affect the income tax and estate tax treatment of the trust. If you choose to make the trust irrevocable, then it will have its own federal tax i.d. number and can be set up to be taxed either to you, the trust itself, or to the beneficiary.

You can also set up the trust within your will, to be funded upon your death. Such a trust is called a “testamentary trust.” In this case, you will not have a separate trust document, since the terms of the trust will be contained within the will itself.

Because the rules of each state vary as to whether the terms of the trust will cause or not cause disqualification, you really must work with an experienced estate planning or elder law attorney to draft this trust for you. The attorney will be familiar with both the federal and state programs that might be of benefit at some point to your family member, what the rules are under both federal and state benefits laws, how trusts work, the different income and estate tax ramifications of each trust option, and how best to achieve your objectives.

Examples of distributions that will not cause the beneficiary to lose or have reduced government benefits:

• new car
• attorney/accounting services
• alternative health treatments
• TV, DVD player
• public transportation pass
• camera
• computer hardware, software, internet fees
• courses and classes
• dental work not covered by Medicaid
• fitness equipment
• musical instruments
• non-food grocery items
• physician specialists not covered by Medicaid
• utility bills
• physical therapy not covered by Medicaid
• vacations

The above is by no means an exhaustive list, but is only intended to give you some idea of what your gift via trust can be spent on to make your family member’s life so much better, without causing disqualification. As you can see, your gift will have wide-ranging benefits for your family member and will improve their quality of life for many years.

When is a Person Too Incapacitated to Sign a Will, Trust, or Power of Attorney?

As an elder law attorney I am frequently faced with adult children who realize that they simply have to take over for an aging parent. Maybe the parent is falling behind on bills or has trouble dealing with the medical establishment. It is always hard for a “child” to become the caretaker of the once-powerful and dominant parent.

Unfortunately, the parent may be reluctant to sign a power of attorney empowering the child to make legal decisions for the parent, since that act is frequently seen as an admission that the parent may actually need such help. Combine that with the child’s reluctance to bring up the subject for fear that it may anger the parent, and you have a recipe for procrastination. Hence the all-too-common situation where the attorney has to decide if a parent (or spouse) is too incapacitated legally to sign a will, trust, or power of attorney.

Let’s start with wills. Many people are surprised to find out that a person with Alzheimer’s or under a guardianship may still be legally competent to sign a will. That’s because under the laws of most states, a person is legally competent to sign a will if at the time of the signing he or she meets the following tests:

• knows the natural objects of his bounty (i.e., is aware of his spouse and children, if any)
• comprehends the kind and character of his property (i.e., knows approximately his net worth and what kind of assets he owns)
• understands the nature and effect of his act (i.e., realizes that it is indeed a will he is signing, and what that means)
• is able to make a disposition of his property according to a plan formed in his mind

Thus, the lawyer must meet with the parent or spouse and try to discern the above. In some cases, the lawyer may decide that the individual is too incapacitated and thus the lawyer must refuse to prepare a will.

A slightly different test is involved for signing a power of attorney. Here, the individual must be capable of understanding and appreciating the extent and effect of the document, just as if he or she were signing a contract. Thus, the parent may be competent to sign a power of attorney, but not competent to sign a will.

A trust is sometimes deemed to be more like a contract than a will, so that the necessary mental capacity needed to sign a trust may be less than that needed to sign a will. Recognizing that in today’s world living trusts are most often utilized as “will substitutes,” some recent state statutes have made the test for a trust the same as that set forth above for a will.

The mental capacity to sign the document should not be confused with the physical ability to sign one’s name. The law will permit a person to sign an “X” (known as a “mark”), that, so long as properly witnessed, will suffice just the same as a signature. In addition, if even a mark is not possible for the individual to make, then the individual can direct someone else to sign on his or her behalf.

Of course, the best advice is not to wait until it may be too late, but to have those conversations with family members while they are still competent and able to comprehend exactly what they’re signing and why.

I Don’t Have a Will - Do I Really Need One?

A common question estate planning and elder law attorneys often get asked is “Do I really need a will?” (The next question is always, “How much does it cost?” but we’ll discuss that another day!)

Most people would assume that an estate planning attorney would always answer “Yes, of course,” but such is not the case. Many people simply have no need for a will. But let’s take a look at why you may indeed want to have a will.

First, only in a will can you name the person(s) whom you would prefer to handle your estate after your death. Such person is called the “Executor” in some states, the “Personal Representative” in others. In any case, this person is the one who files the original will in court (usually with the help of an attorney), gathers and protects all your assets, pays all your debts, files the estate tax return (if necessary), and distributes your property in accordance with your directions as set forth in the will.

With no will, someone still has to go to court to get the legal authority to deal with your property and do the same tasks as the Executor, but this time it is up to the probate court judge who that person is. Since you left no indication whom you wanted, a battle could ensue. A will solves that problem, since it is rare that the court will not appoint the person(s) you named as Executor in your will.

The second big reason to have a will is if you wish to distribute your property in a way that differs from the default rules of your state. Every state has a statutory will, essentially, for those who did not write their own will. This scheme of distribution is called “intestacy” (”testate” means will, so “intestate” means with no will). For example, most state intestacy laws say that upon your death all of your money, assets, and real estate pass to your surviving spouse, if any, then in equal shares to your children, outright.

So a good reason to have a will would be any of these reasons:

• You don’t want to leave everything to your spouse.
• You want to leave more to one child than another.
• You have minor children and want to hold back their access to your money until they are at least age 25 or 30.
• You’d like to leave $10,000 to your alma mater or your church or temple.
• You want to “cut out” one of your children.
• You’d like to leave money to a family member in a way that is protected against lawsuits, creditors, and divorcing spouses.
• You’d like to leave a small sum to each of your grandchildren or a daughter-in-law.
• Your parents are living, you have no spouse or children, and you want your assets to go to your siblings and not your parents.

So who does not need a will, then?

• Your estate is relatively small and you’re happy with how your estate would be divided and distributed under your state’s intestacy laws.
• You’ve completely avoided probate by using “P.O.D.,” “T.O.D.,” joint ownership with right of survivorship, a trust, or beneficiary designations on all your assets.
• You’re content having all your assets be immediately distributed to your heirs, regardless of their age or ability to handle money.
• You’re not overly concerned with who will handle the affairs of your estate after your death.

Finally, before you consider the cost of a will, consider the real cost if your wishes were not carried out because you needed a will but did not have one. Sometimes even the simplest will is better than no will at all!

How To Choose A Good Nursing Home

With nursing homes costing anywhere from $3,500 to $10,000 per month (depending on your state), and with the average stay about 2 1/2 years, the total cost of a typical stay in a nursing home can be between $100,000 and $300,000. However, family members should not focus only on the cost but also on the care of their parent or spouse. How do you go about finding a good nursing home, one which will properly care for the emotional as well as physical and medical needs of your family member?

A good place to start would be the Consumer Reports Nursing Home Guide (you can find this online). This in-depth site is completely independent of the nursing home industry and can be relied on for giving you objective information. Here you can learn not only what to look for in evaluating nursing homes, but also review a state-by-state “Quality Monitor” that lists recommended homes and those to avoid. These lists are far from complete, but the general information on the site is very helpful.

Medicare itself has published a four-page checklist on its excellent website www.Medicare.gov that you would take with you when visiting a nursing home. One of the most important items on the list is whether or not the facility is “Medicaid-certified.” Most people don’t realize that many nursing homes do not accept Medicaid; if you think you may be applying for Medicaid at some point, then you probably should start out placing your family member in a Medicaid-certified facility, so that once your private pay money stops you won’t have to move your family member, which can be very traumatic.

Another great resource is the Nursing Home Inspector at www.CarePathways.com, where for a small fee you can search their database of over 44,000 nursing homes and obtain detailed information about the performance and characteristics of every Medicare/Medicaid certified nursing home in the US.

Finally, you should check out the free reports available at www.MyZiva.net. MyZiva.Net claims to be a free, objective and easy-to-use nursing home resource for prospective residents, caregivers and healthcare professionals that can help you find and compare nursing homes. You simply enter the zip code of the area you are considering, and a comprehensive chart pops up from which you can link to reports on the facility’s main focus, survey results, quality measures, and staffing. You can also check several facilities you are interested in and obtain a side-by-side comparison.

In all cases, you will have to follow-up any online research with phone calls to the facility and finally an in-person visit. Try to get a tour that takes you “behind the scenes.” Does the staff look harried? Are the hallways cluttered? What about the food? You might consider having a meal there, yourself, with the residents. Bring your checklist and don’t be shy about asking tough questions.

Moving a loved one to a nursing home can be an emotionally draining experience not just for the one having to move there, but for the entire family. A spouse of 65 years, separated for the first time; a parent who’s always been there for you, that you now must take care of; the solid father and grandfather who now looks shriveled and worn–all these can exact an emotional toll on the family. Accordingly, you want to do your best job in locating a facility that you can feel confident about, and that will be a comfort and aid to your spouse or parent during the remaining years of their life. Hopefully the resources discussed above will assist you with that task.

A recent additional resource, The Baby Boomer’s Guide to Nursing Home Care, explains the many laws protecting nursing home residents and provides advice on obtaining the best nursing home care possible. It is intended for use by residents and their family members and friends, but also is a worthwhile reference for nursing home operators, attorneys, social workers, and others with a personal or professional interest in nursing home care.

For a different point of view on nursing home placement, see There’s No Place Like (a Nursing) Home: 4 Powerful Steps That Will Change Your Life.

Selecting a nursing home for a loved family member can be a very difficult decision. However, once you are armed with the information from the above resources you should find this burden to be much less onerous. In any event, good luck!

Medicaid and the Living Trust

You’ve probably gotten a postcard or seen an ad for a seminar on “Living Trusts” and all the benefits they supposedly offer you. Basically, a Living Trust is a trust you create and fund during your life and which you retain the ability to change and revoke at any time. They have their place and can be quite useful, in the right circumstances, but the question of today is whether they are useful if you may be applying for Medicaid.

The problem with Living Trusts for someone applying for Medicaid is that everything titled in the name of the Living Trust is considered an available asset, even if it was exempt outside of the Living Trust. For instance, your home is exempt (a single person’s home is almost always exempt up to at least $500,000), but if you deed it into your Living Trust, it suddenly loses its exemption. That alone can cause you to become ineligible for Medicaid, forcing you to deed your house out of the Trust back into your own name. The same would be true of your car or even your other personal property.

Now bank accounts and investments can certainly be titled in the name of the Living Trust, since such assets are countable whether they are titled in your name or in the Trust’s name. However, if you are single, you will have to spend down those assets in any case, in order to qualify for Medicaid, so that’s a dubious benefit.

Since you basically have to withdraw all the Trust assets and retitle them back into your own name, as you can see it makes absolutely no sense to pay an attorney to create a Living Trust for you if you are single and facing long-term care, and if you think that you may need or want to apply for Medicaid at some point.

If you are married, it is possible for the Community Spouse (i.e., the spouse not in the nursing home) to have assets titled in the name of a Living Trust, but there is usually little advantage to doing so if you reside in a state like Colorado which has relatively inexpensive and simple probate procedures.

As a matter of fact, there is a type of trust that the Community Spouse can set up to be funded after the death of the Community Spouse, which can hold assets for the benefit of the nursing home spouse yet not count against that spouse’s Medicaid eligibility. However, such a trust cannot be used in a Living Trust and can only be used in a Will.

So the lesson of all this is that Living Trusts may be useful for general estate planning purposes but are inappropriate–or worse–in a Medicaid planning situation.

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).