THE BLOG
09/22/2015 05:43 pm ET Updated Sep 22, 2016

Some Legal Issues at the Intersection of Elder Law and Estate Planning

Estate planning frequently addresses property transfers in contemplation of death while elder law considers retirement income issues. While it is easy to consider the two issues in isolation, this is frequently a mistake. This comment briefly provides an incomplete educational overview of some common legal issues that are relevant in both the estate planning and elder law context. Consult experienced professionals in specific situations.

For the ordinary person, government benefit programs are an important retirement income consideration. In broad overview, governmental programs may be divided into "means-tested" and "non-means-tested." Supplemental Security Income (SSI) and Medicaid are examples of federal means-tested programs that consider an individual's resources and income. In contrast, a number of Social Security administered programs and Medicare benefits are non-means-tested.

A significant ethical and legal issue is whether or not to dispose of assets through pre-need planning in order to qualify for means-tested government programs such as Medicaid that might pay, for example, the cost of long term nursing home care. Attorneys have been disciplined or had their licenses suspended for failing to advise their clients concerning potential Medicaid planning. Means-tested eligibility is highly complex and beyond the scope of this brief comment. Common terminology involves phrases such as "medical necessity," "income cap," and "spousal protected resource amount."

Assuming that one wishes to maximize eligibility for means-tested governmental benefits, a common income reduction technique in a number of states is to create a Qualified Income Trust (QIT), often called a Miller Trust due to a 1990 decision, Miller v. Ibarra. There are additionally several varieties of "special needs trusts" that might be created without reducing government benefits. This is a highly complex matter that requires consultation with experienced professionals.

Medicaid eligibility typically considers transfers of assets, such as gifts, to third parties occurring in the 60 months prior to the Medicaid application. There is a complex intersection of gift tax and Medicaid rules. It may be possible to create irrevocable college saving plans and also make transfers to spouses without penalty. A child who resided in the parent's home and cared for the parent, delaying institutional care in a physician's opinion, may be able to receive assets as a gift without a Medicaid penalty under the "two-year caretaker rule." Again, this is a highly complex subject that requires consultation with experienced professionals.

If an individual is a Medicaid recipient, any inheritance or life insurance proceeds that the individual receives may terminate that eligibility. Consequently, you may need to consult with individuals likely to name you as a beneficiary. A related issue involves the amount of assets that a non-disabled spouse may retain without invalidating Medicaid eligibility for a disabled spouse. Prior to 1989, so called "Medicaid Divorces" would occur because the financial amount that the non-disabled spouse could retain was quite small. Now, there is a "Spousal Protected Resource Amount" (SPRA), the details of which are beyond this brief comment.

For some years there has been a "Medicaid Estate Recovery Program" (MERP) that allows the recovery of received Medicaid benefits from the estate of a recipient. There are certain exemptions from recovery and an "Undue Hardship Request" may be made. All of these procedures are time sensitive and require the assistance of an experienced professional.

A range of veterans' benefits and health care may be available for eligible individuals. These programs should always be explored by veterans and their surviving family.

One should investigate the financial viability of long-term care (LTC) insurance. Typically the existence of long-term care insurance has no impact on Medicaid eligibility but is a resource that must be used either prior to receiving Medicaid or to reimburse Medicaid. Precisely how much LTC to purchase and when to purchase LTC is a complex question requiring expert consultation.

Family members may have strong opinions concerning the best course of action for elderly family members. The rise of blended families and potential elderly creeping incapacity and mental health issues provide additional complications. Professional individuals, such as attorneys, physicians, and accountants, may find themselves in an uncomfortable referee role. For the sake of your family, as well as yourself, it is highly desirable to undertake as much elder law and estate planning as far in advance as possible. Of course, consult experienced professionals and keep your family appropriately informed so that there will not be surprises. For example, do not overlook the benefit of a durable power of attorney for financial issues, a medical power of attorney for medical decision making, and documents that express your wishes concerning medical life support and organ donations. This brief comment does not discuss will preparation and numerous trust fund possibilities. Documentation of one's financial and personal plans, carefully preserved and readily available, is always best.

This comment briefly provides an incomplete educational overview of some common legal issues that are relevant in both the estate planning and elder law context. Always consult experienced legal, financial, and tax professionals in elder law and estate planning matters.