9 Estate Planning Terms You Need To Know

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Estate Planning Terms

No one likes to think about one’s own death. However, planning ahead can help your family avoid unnecessary complications, delay, and expense. This may be done through wills, trusts, joint ownership, and life insurance. In addition, modern estate planning also includes “life” planning through powers of attorney and health care proxies. These enable someone else to act for you in the event of your incapacity. Understanding the following terms is the first step toward planning your estate. However, no estate planning steps should be taken without consulting with a qualified professional.

  • Probate

This is the name for the process in the Probate Court through which the ownership of your assets passes to your heirs. It includes the collection of your assets, the payment of your bills, and the distribution of your estate. It only covers what you own outright, not joint property, trust property, life insurance proceeds, or any assets that have beneficiaries or payable-on-death terms.

  • Will

Your will is a legally binding statement of who will receive your property at your death. It also appoints a legal representative to carry out your wishes. However, the will only covers probate property.

  • Estate Tax

The estate tax applies to both the probate and the nonprobate property of the decedent. For federal purposes, the amount free from taxation is $5.6 million as of 2018 per individual, $11.2 million per married couple. For Rhode Island, a person can pass $1,537,656 free from estate taxation.

Reading your Estate Planning documents is critical to understanding your plan

  • Marital Deduction

On the federal level, anything passing to the surviving spouse of a decedent is not included in the taxable estate and, consequently, is not subject to taxation. All of the couple’s assets are then taxed upon the death of the surviving spouse, unless an estate tax plan has been executed.

  • Trust

A trust is a legal entity under which one person—the “trustee”—holds legal title to property for the benefit of others—the “beneficiaries.” The trustee must follow the rules provided in the trust instrument. An irrevocable trust is one that cannot be changed after it has been created. A revocable trust is one that may be changed or rescinded by the person who created it. Trusts are often used for tax planning, to provide for someone with expertise to manage assets, or to shelter assets to protect them from creditors or for long-term care planning.

  • Durable Power of Attorney

Under a power of attorney, you may appoint someone else to act for you when you are unable to do so yourself. The reason may be your mental incapacity or your inability to be somewhere when needed. The person you appoint—your “attorney-in-fact”—must always act in your best interest and try to make choices you would make if you were able to do so.

  • Health Care Proxy

Similar to a power of attorney, through a health care proxy you may appoint someone else to act as your agent—but for medical, as opposed to financial, decisions. Unlike a power of attorney, the health care proxy does not take effect until your doctor determines that you are incapable of making decisions yourself. Before that decision, your agent may make no decisions on your behalf. You may include in your proxy a guideline for your agent to use in making decisions. These may include directions to refuse or remove life support in the event you are in a coma or a vegetative state. On the other hand, your instructions may be to use all efforts to keep you alive, no matter the circumstances.

  • Community Spouse Resource Allowance (CSRA)

If your spouse has to move to a nursing home, you will have to pay for his or her care out of pocket until he or she qualifies for Medicaid. Under the Medicaid program the nursing home spouse may only have $4,000 in “countable” assets. (Noncountable assets include your home, household belongings, one car, and prepaid funeral plans.) The amount the healthy spouse is permitted to keep under the Medicaid program is known as the “community spouse resource allowance” or “CSRA.” The CSRA is all of the couple’s combined assets up to a cap of $123,600 (in 2018). In some cases, the community spouse is entitled to retain assets above the $123,600 limit when her income is less than the minimum monthly maintenance needs allowance, which is described below.

  • Minimum Monthly Maintenance Needs Allowance (MMMNA)

The Medicaid rules also govern the amount of income the community spouse is entitled to once the nursing home spouse qualifies for Medicaid. Normally, the community spouse keeps his or her income and the nursing home spouse pays his or her income to the nursing home, keeping only a $50.00-a-month “personal needs allowance.” However, if the healthy spouse’s income is low, he or she may be entitled to a share of the nursing home spouse’s income. In each case where a married nursing home resident qualifies for Medicaid, the Department of Human Resources calculates a “minimum monthly maintenance needs allowance” or “MMMNA” for the community spouse based on his or her housing costs. This will range from a low of $2,057.50 to a high of $3,090.00 a month (in 2018). If the community spouse’s own income is below his or her MMMNA, he or she will be entitled to a share of the nursing home spouse’s income to make up the difference.

Want to learn more? Contact Attorney Matthew J. Leonard, Esq. at 401-274-0300 or at mleonard@smsllaw.com to arrange for a free consultation.

Reaction to R.I.’s $9.6B budget proposal: Bad for nursing homes; some good news for kids

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PROVIDENCE, R.I. — The proposed $9.6 billion state budget headed for a House vote later this week has elicited both sighs of relief – and groans – since its piece-by-piece unveiling late Friday night.

A blog dedicated to the challenges facing people with developmental disabilities carried this headline: “Crisis appears averted in RI DD Services.”

But nursing homes cried foul over a “devastating” 8.5 percent cut in their state Medicaid reimbursements to offset the millions they won in a court case, that is currently in limbo, because a state lawyer, who has since resigned, missed the appeal deadline. The Raimondo administration is currently begging the Supreme Court for a reprieve.

Here’s what the bill says: “Beginning July 1, 2018, the rates paid to nursing facilities will be reduced by eight and one-half percent (8.5%) from the rates approved by the Centers for Medicare and Medicaid Services and in effect on October 1, 2017 for nine (9) months until March 2019, at which time the rates will revert to the October 1, 2017 level and be increased by one percent (1%).”

Mattiello told reporters the wording is aimed at reinforcing the funding level lawmakers intended all along, in the face of winning arguments by the nursing homes that the state had improperly shortchanged $8 million a year – and a potential $24 million overall – in its calculations.

James Nyberg, the director of one of the two nursing home advocacy groups – LeadingAge RI – issued a statement over the weekend that said the proposed new budget “will have immediate and devastating consequences for nursing homes and their residents.”

“Tucked into the budget is a cut of 8.5 percent for nursing homes that will go into effect July 1st, in just 21 days. How can we, as an industry, be prepared to react responsibly when we are already significantly underfunded?” he asked.

 

Source: Reaction to R.I.’s $9.6B budget proposal: Bad for nursing homes; some good news for kids

What are the Trustee’s Duties?

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The Trustee’s Duties

Congratulations. You have been appointed trustee of a trust. That is a strong vote of confidence in your judgment and probity. Unfortunately, it is also a major responsibility. Following is a short description of your duties.

1. Fiduciary Responsibility. As a trustee, you stand in a ‘‘fiduciary’’ role with respect to the beneficiaries of the trust, both the current beneficiaries and any ‘‘remaindermen’’ named to receive trust assets upon the death of those entitled to income or principal now. As a fiduciary, you will be held to a very high standard, meaning that you must pay even more attention to the trust investments and disbursements than you would for your own accounts.

2. The Trust’s Terms. Read the trust itself carefully, both now and when any questions arise. The trust is your road map and you must follow its directions, whether about when and how to distribute income and principal or what reports you need to make to beneficiaries.

3. Investment Standards. Your investments must be prudent, meaning that you cannot place money in speculative or risky investments. In addition, your investments must take into account the interests of both current and future beneficiaries. For instance, you may have a current beneficiary who is entitled to income from the trust. He or she would be best off in most cases if you invested the trust funds to generate as much income as possible. However, this may be detrimental to the interest of later beneficiaries who would be happiest if you invested for growth. In addition to balancing the interests of the various beneficiaries, you must consider their future financial needs. Does a trust beneficiary anticipate buying a house or going to school? Will she be depending on the trust income for retirement in fifteen years? All of these questions need to be considered in determining an investment plan for the trust. Only then can you start considering the propriety of individual investments.

4. Distributions. Where you have discretion on whether or not to make distributions to a beneficiary you need to evaluate his current needs, his future needs, his other sources of income, and your responsibilities to other beneficiaries before making a decision. And all of these considerations must be made in light of the size of the trust. Often the most important role of a trustee is the ability to say ‘‘no’’ and set limits on the use of the trust assets. This can be difficult when the need for current assistance is readily apparent.

Trustees Has Many Responsibilities

5. Accounting. One of your jobs as trustee is to keep track of all income to, distributions from, and expenditures by the trust. Generally, you must give an account of this information to the beneficiaries on an annual basis, though you need to check the terms of the trust to be sure. In strict trust accounting, you must keep track of and report on principal and income separately.

6. Taxes. Depending on whether the trust is revocable or irrevocable and whether it is considered a ‘‘grantor’’ trust for tax purposes, the trustee will have to file an annual tax return and may have to pay taxes. In many cases, the trust will act as a pass through with the income being taxed to the beneficiary. In any event, if you keep good records and turn this over to an accountant to prepare, this should not be a big problem.

7. Delegation. While you cannot delegate your responsibility as trustee, you can delegate all of the functions described above. You can hire financial advisors to make investments, accountants to handle taxes and bookkeeping for the trust, and lawyers to advise you on questions of interpretation. With such professional assistance, the job of trustee need not be difficult. However, you still need to communicate with those you hire and make any discretionary decisions, such as when to make distributions of principal from the trust to one or more beneficiaries.

8. Fees. Trustees are entitled to reasonable fees for their services. Family members often do not accept fees, though that can depend on the work involved in a particular case, the relationship of the family member, and whether the family member trustee has been chosen due to his or her professional expertise. Determining what is reasonable can be difficult. Banks, trust companies, and law firms typically charge a percentage of the funds under management. Others may charge for their time. In general, what’s reasonable depends on the work involved, the amount of funds in the trust, other expenses paid out by the trust, the professional experience of the trustee, and the overall expenses for administering the trust. For instance, if the trustee has hired an outside firm for investment purposes, that expense would argue for the trustee taking a somewhat smaller fee. In any case, it makes sense to consult with a professional experienced with trust work who can guide you on what would be normal fees considering all of the circumstances.

In short, acting as trustee gives you a wonderful opportunity to provide a great service to the trust’s beneficiaries. The work can be very gratifying. Just keep an eye on the responsibilities described above to make sure everything is in order so you no one has grounds to question your actions at a later date.

Auditor’s report depicts disarray in R.I. social service programs

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The report issued on the roll-out of the computer system shows continued problems

The Rhode Island Department of Human Services (“DHS”) which administers the Medicaid program has been attempting to roll out a new computer system for several years. The system was designed to speed up application review and automate the application process to an on-line system. Unfortunately per the auditors report, the system is still experiencing issues. 

For those attorneys who assist elder clients with Medicaid applications this has been a challenging time. Medicaid will pay for the nursing home care needed by these elderly clients who have less than $4,000 in countable assets. It is stressful to family members who have submitted applications for coverage, who have a loved one being cared for at a nursing home, and not knowing if their application has been approved. They fear the consequence of an unexpected denial and how that may impact a spouse or the recipient.

Applicants can wait months or years prior to receiving an approval of their application.

Rhode Island law requires DHS to pay nursing homes for any care given patients who have applications pending for greater than 90 days. This law has allowed payments to go out, facilities to get paid, and patients to receive the care they need, until the application is approved.

Fortunately, the reports also states that things are improving and applications are being reviewed quicker and more accurately. The employees at DHS have done an admirable job overcoming a challenging roll-out but still have much work to do.

Source: Auditor’s report depicts disarray in R.I. social service programs

If you or a loved one wants to learn more about qualifying and applying for Medicaid benefits, please contact our office for a free consultation.

Caretaker child exception can protect residence of Medicaid recipient

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Caretaker Child and Medicaid Qualification

Children are often confronted with difficult decisions when time and age catch up with their parents. Many children have been pushed into the role of being primary caregiver for their parents. The motivation stems from the very reasonable wish to keep parents at home for as long as possible despite health and medical issues of parents that indicate the parents need additional assistance with activities of daily living.

When children assume the role of caregiver to their parents with the goal of being able to avoid nursing home care for parents, there are benefits to this arrangement. Beyond the obvious advantage of the peace of mind of knowing you are doing all that you can keep your parents comfortable.

When a parent reaches the point in life where medical needs are increasing, it is prudent for the surrounding family to contact an elder law attorney who can explain the necessary and proper documents to have in place for parents so that children can assist with the parents legal and medical needs.

Children often become caregivers for parents.

In addition, the elder law attorney should be prepared to introduce you to the Medicaid program and how it works for people who are expected to need skilled nursing and long term care.

Family should advise the elder law attorney about any children living at the home caring for a parent. These facts create a unique opportunity to protect the home of the parent from possible long long term care costs while still maintaining Medicaid eligibility.

If a child lives with a parent of the two (2) year period before the parent needs to enter into a nursing home, an if the child had not been with the parent the parent would have had to live in a nursing home, the parent can transfer the home to the caretaker child without being disqualified from Medicaid benefits. The parents doctor needs to certify to this arrangement and time frame for this exception to the transfer penalty to work.

The below link to an article explains some of the things that will need to be demonstrated to take advantage of this Medicaid planning opportunity. In Rhode Island, the rules are similar to the attached article but concerned individuals should meet with an elder law attorney to discuss the caretaker child exception as it applied to their facts.

Source: James Contini column: Caretaker child exception can protect residence of Medicaid recipient

 

Want to lean more? Contact our office for a no-cost consultation.

MassHealth Denial Trust Case Overturned

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Denial of Medicaid Benefits based on Income-Only Trust Overturned

A Massachusetts Superior Court has overturned a MassHealth denial of coverage for a nursing home resident who MassHealth found had countable assets available from a trust she had created.

MassHealth who administers the Medicaid program for Massachusetts residents has been aggressively challenging and contesting applications where the applicant was the beneficiary of an Income-Only trust. MassHealth would take the position that assets held in an Income-Only trust are considered available to the applicant to be used on their own care and thus would disqualify them from Medicaid eligibility.

MassHealth will need to be more welcoming of Income-Only trusts

An Income-Only Trust used for Medicaid purposes states that the grantor of the trust shall, as the name indicates, only be entitled to receive income from the trust. If the terms of the trust also state that the grantor shall never be able to receive principal from the trust, the assets in the trust will not be deemed an available resource for the Medicaid applicant. Massachusetts has not followed this rule and denied Medicaid benefits to applicants despite these terms in the trust. With this new decision, MassHealth has been told that it was improper to deny applicants Medicaid benefits of the the basis of Income-Only Trusts.

This decision is welcome news for many estate planners seeking to clarify the role Income-Only trusts play in the estate planning process.

CLICK HERE TO READ THE ARTICLE

The usage of Trusts in Estate Planning is a critical component. The rules and terms contained in the trust dictate how various governmental agencies will view the trust. Having a clear understanding as to interpretation of language as to important benefits such as tax treatment, control issues or Medicaid qualification is required. This decision with MassHealth brings clarity to language that prior was in flux.

Want to learn more about Irrevocable Income-Only trusts? Contact our office for a no-cost consultation to see if they fit into your estate plan.

New drug to treat Alzheimer’s disease under study at Butler Hospital

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Alzheimer’s disease and estate planning

When caring for and planning for an individual, we address the financial and legal aspects of caring for a loved elderly one. These planning considerations do not happen in a vacuum. The decisions we make rely on the medical issues, complications and opportunities available to us. Knowing about treatment options and emerging science is critical in planning for future needs. Alzheimer’s disease robs cognitive ability and causes those who are afflicted to need long-term skilled nursing care.

When medical breakthroughs are occurring on diseases the are often require long term nursing care, we must share and learn as to their success and progress. Such studies and advancements are occurring at Butler Hospital in Providence, Rhode Island as evidenced by the attached link to an article published by the Providence Journal.

Source: New drug to treat Alzheimer’s disease under study at Butler Hospital

 

The Collapse of Private Long Term Care Insurance

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A Cautionary Tale of the Long Term Care Insurance Marketplace

By 2050, the U.S. will have almost 90 million people aged 65 and over, and more than half will need long-term care at some point. Yet only a sliver of that group can afford long term care insurance. As of 2015, private insurance covered less than 10 percent of U.S. spending on long-term care — and the private market has been shrinking.

Medicare covers only a short period of care after a person has been hospitalized. That leaves Medicaid, the state-administered program for long term care. The paperwork involved is a protracted ordeal, especially for those with physical and mental impairments, and the rules to qualify are strict and complex.

The reality is – the private insurance market is on life support so understanding Medicaid is critical. Schedule an appointment to learn the rules.

Nothing illustrates this more than General Electric and its Long Term Care Products. The company’s troubles with long-term-care insurance show the challenge of caring for an aging population.

Insurance Policy

Long-Term Care Insurance Policies have hurt many insurance companies balance sheets.

General Electric’s multi-billion-dollar loss in a unit that sold long-term-care insurance is a blow from which the iconic company is still reeling. But it’s also a harbinger of a much greater challenge for society at large: paying to care for the growing number of Americans who can’t look after themselves.

GE’s travails stem from the early 1990s, when insurance companies began developing a new line of business, offering policies that, in return for regular premium payments, would cover the cost of a nursing home or other long-term care if the need arose. With the baby-boom generation approaching retirement, sales took off. By 2007, some 7 million policies were in force, generating almost $10 billion a year in premiums.

The insurers miscalculated. Claimants lived longer than expected — perhaps because people prudent enough to buy the insurance were more careful about staying healthy. But longer lives meant more people needing long-term care. Medical costs rose, and investment returns fell short. To cover their obligations, companies had to increase premiums (as far as regulators allowed) and, like GE, take big charges against earnings. Penn Treaty was forced into liquidationleaving policy holders to rely on meager state guaranty funds.

Tempting as it may be to blame regulators, that wouldn’t be fair. True, they could have allowed more premium increases sooner, and they should always demand that companies have ample equity to absorb losses. They’ll need to investigate GE’s accounting. But new insurance products are inherently risky, and companies are bound to make mistakes. Officials shouldn’t be expected to catch risks that actuaries can’t foresee.

Rather, the debacle illustrates a troubling truth: Private insurance can’t handle this problem by itself.

Understanding the rules as to the Medicaid program is critical for all persons. Failure to anticipate long term care nursing costs can wipe out an entire lifetime of savings. Call us to discuss how to protect your lifetime savings while still qualifying for Medicaid.

CLICK HERE TO READ THE ENTIRE ARTICLE ON BLOOMBERG.