What Is Estate Planning?
The process of giving what I have, to who I want, when I want, the way I want; and when I die, I want my assets to go to the people I love without unnecessary cost or delay. These goals can be accomplished by having the right planning documents in place. These documents may include a will, a power of attorney, healthcare proxy, living will, or a trust, among others.
What is Elder Law?
Elder Law is a fairly broad area of the law that deals with the problems faced by the largest-growing segment of the U.S. population—the elderly. It includes estate planning, wills and trusts, conservatorship & guardianship, as well as government programs such as Medicare, Medicaid, and V.A. Benefits. A particularly important part of Elder Law practice is coordinating the interaction of these areas of the law. For example, an estate plan that may otherwise be proper could cost a client a great deal of money in the event he or she (or his/her spouse) ever has to go to the nursing home.
What About Medicaid Planning?
Nobody wants to go the nursing home, but the unfortunate reality is that more and more people require that level of care as life expectancy continues to increase. The average cost of a nursing home in Alabama is currently about $5,400 per month. Because of the high cost of care, Medicaid pays for a great deal of the nursing home care in this country.
To qualify for Medicaid nursing home benefits, an applicant cannot have over $2,130 per month in income. The bigger problem in qualifying, however, is a person’s assets. A married person entering the nursing home can protect between $25,000 and $115,920, but only if there is a well spouse who is remaining in the community. An unmarried person applying for Medicaid nursing home benefits can have only $2,000 in assets. Any excess assets must be spent-down.
We generally deal with two kinds of Medicaid planning cases: “pre-planning” cases, and “crisis” cases. In pre-planning, we can incorporate the maximum amount of asset protection into an individual’s estate plan to ensure that their assets are protected from the nursing home, while at the same time making sure they get the level of care that they need. In a crisis case, a loved one is generally about to enter the nursing home (or has already been admitted). In those cases, we can still help protect a substantial amount of assets, but with far fewer options than the pre-planning scenario.
Terms and Definitions
Will: A will is a document that directs who gets all of your “probate” property. This includes, e.g., anything that is not owned jointly or is not owned by a survivorship account. Importantly, a will is only effective after you die.
Trust: A little red wagon. (Confused? Ask me why.) A trust is a contract in which a trustee holds property for the benefit of the beneficiaries. Trusts are either revocable or irrevocable. They can be created during your life (generally called a Living Trust or Inter Vivos Trust) or they may be created when you die by including a provision in your will (called a Testamentary Trust). A trust, when set up properly, will avoid probate, and can also provide asset protection from creditors, (e.g., from a law suit, or from a nursing home), an adult child’s spouse in divorce, bankruptcy, and can even protect beneficiaries who are bad with money from themselves. Gifts to minor children must be left in trust or according to Alabama’s law governing transfers to minors. A trust may be effective both while you are alive and/or after you die, depending upon how it is drafted.
Power of Attorney: A power of attorney (POA) grants a person who you appoint (called your agent or your “attorney-in-fact”) the power to act on your behalf. In estate planning, a POA is generally given to a spouse and/or adult child to handle financial matters (and limited healthcare decisions) on your behalf. The power it confers may be conferred at the time the document is signed, or only upon your disability/incompetency (depending on how it’s drafted). It might also require certification by your doctor that you are in need of assistance in making financial and other decisions prior to becoming effective.
Healthcare Proxy / Living Will / Healthcare POA: These terms are used somewhat interchangeably, and they may overlap. Generally speaking, they give someone else the power to authorize medical treatment, or even to refuse it. Depending upon the specific document, it may grant the person total power to make decisions, or it may provide detailed instructions that do not grant the discretion to authorize anything that is contrary to what is included in the document.
Probate: Probate is a process by which your will is presented to the Probate Court to be “proved.” Your heirs are notified of the proceeding and given the opportunity to object. Creditors may file claims against your estate within a given period of time. The process takes at least six months (but may take a year or longer) and generally requires an attorney.
Estate Administration: When you die without a will, and have an estate that needs to be divided up among your heirs, an estate administration may be filed. It is similar to the probate of a will. However, because you didn’t have a will, your assets are divided and distributed according to Alabama’s statute of “descent and distribution.” This is also called “intestate succession.” Essentially, this is Alabama’s default estate plan for people who have not created their own.