Apparently there is a lot of bad asset protection planning for Connecticut Medicaid Title 19 benefits going on out there. Asset protection can be very tricky. The wrong word in the wrong place can wreak havoc with a client’s goals and leave you with no protection. The right word (or omission) in the right place can conversely protect hundreds of thousands of dollars. Another case that went to judgment in Connecticut Superior Court highlights a common oversight when it comes to estate planning – flawed language leading to inadequate asset protection.

Rome v. Wilson-Coker (Ct. Super. Ct., No. HHBCV064012367S, Oct. 24, 2007).

Marjorie Rome is bipolar with a history of institutionalizations. She needs help and a certain level of benefits to receive treatment for her condition. Presumably with good intentions and a desire to help Marjorie, her father created a trust for Marjorie in his will. The trust was based on the model of a discretionary trust which vested discretion in the trustee to make or refuse distributions for Marjorie’s benefit.

Unfortunately, for some reason which I fail to comprehend, the trust language directed the trustee to make distributions as necessary for Marjorie’s “interest and general welfare, even to the extent of exhausting the entire Trust estate.” This is a big blunder if you want to include asset protection in your estate plan or trust and it cost the Rome family.

So eventually Marjorie entered a nursing home and applied for Medicaid. The Department of Social Services denied her application based on their determination that her father’s trust was available to Marjorie as an asset. The Trustee thought it was a good idea to deny distributions to Marjorie for nursing home costs, mistakenly believing that he actually had real discretion to do so.

Marjorie Rome later pleads her case to the Superior Court claiming that the trust is not available because the Trustee is refusing to make distributions to her. The court recognizes that the flawed language in her father’s trust gives Marjorie a right to compel distributions from the trust even if the Trustee refuses.

Her father made a mistake in his estate plan, and Marjorie had to pay for it. If you are looking for asset protection, do everything you can to make sure it works.

One of the Veteran Administration’s best kept secrets, which is an excellent potential source of funds for long term care (either at home or in an assisted living facility) are veteran’s benefits for a non service connected disability. Most VA benefits and pensions are based on a disability which was incurred during a veteran’s wartime service. There is another benefit, however – a pension program – available for individuals who are disabled due to the issues of old age, such as Alzheimer’s, Parkinson’s, multiple sclerosis, and other physical disabilities. For those veterans and widows (ers) who are eligible, these benefits can be a blessing for the disabled individual who is not yet ready for a nursing home.

There is a specific portion of the pension program which is of particular importance. This program is “Aid and Attendance” (A and A) and is available to a veteran who is not only disabled, but has the additional requirement of needing the aid and attendance of another person in order to avoid the hazards of his or her daily environment (in other words, someone needs to help you to prepare meals, to bathe, to dress and otherwise take care of yourself).

Under this program, a veteran can receive a maximum of $1,801.00 per month in benefits and a widow or widower can receive up to $976.00 as a maximum benefit for A and A for the year 2007. The applicant must be determined to be “permanently and totally disabled”. The applicant does not need to be helpless he/she need only show that he/she is in need of aid and attendance on a regular basis. Someone who is housebound or is in an assisted living facility and over the age of 65 is presumed by the Veterans Administration to be in need of aid and attendance.

This particular program has limitations related to the income and assets that are held by the applicant. However, in computing the income of the applicant, certain items can be deducted. Specifically, unreimbursed medical expenses (UMEs) paid by an individual may be used to reduce the applicant’s income. Home attendants or aides are an allowable medical expense deduction, as long as that attendant is providing some medical or nursing services for the disabled person. The cost of an assisted living facility, and even part or all of the cost of an independent living facility, can also be an allowable medical deduction to reduce your gross income to a much lower net countable income that may qualify you for veterans’ benefits.

Simplified Example: Bill Robert is a 66 year old veteran and, due to his health needs, has caregivers coming to his home for several hours each day. His income is $1800/month and he is paying caregivers $3300/month. Rather than deplete his savings of $45,000, he applies for a service pension through the VA. The VA considers the $3500/month he is paying to his caregivers unreimbursed medical expenses and subtracts the amount from his income. In other words, when calculating his pension, the VA considers his income to be negative $1500. He applies for benefits and is eligible for $1500/month to help him with his bills!

To file a claim for this benefit, it is wise to seek the involvement of an experienced elder law attorney who is familiar with estate planning, disability, Medicaid and veterans’ benefits. An attorney skilled in elder law can provide a veteran and the veteran’s family with appropriate pre filing consultations to determine the appropriate steps that must be taken to be able to determine if it would be right to apply for this VA benefit.

So somewhat regularly I get requests to help families that have already done their own asset protection plan for Medicaid. Can you see where I am going with this? If they are contacting me to fix something, obviously their do it yourself plan went wrong somewhere and they are now in a lurch between the nursing home and the Department of Social Services (DSS). I hope you are here to educate yourself before going down this same dangerous road. This is my critical Medicaid mistake #1 – do it yourself asset protection.

I have had families contact me after they transferred assets out of a parent’s name and then spent all of the funds within the look back period of the parent’s application for Title 19 Medicaid benefits. From a legal perspective, there is often no rhyme or reason to these situations and they often lead to disaster. So in a case like this a family has transferred and spent everything and gotten themselves into trouble with DSS. Now, that the Medicaid application was denied they recognize they need experienced legal advice. They have already spent everything, how are they going to pay to get a good attorney to help them out of this hole? Speaking for myself, it usually costs more to have me fix an ill-advised asset protection plan than to create a well designed plan.

There are countless variables to evaluate when creating an asset protection plan for Medicaid eligibility. Overlooking even one variable in the analysis can lead to exactly the wrong result. There is a lot of information here and on other sites about general Medicaid issues; however, generic information is only as good as the person applying it to your situation. Someone with asset protection experience can make a positive impact while someone with no experience or training can take you down the wrong path. If you are considering a do it yourself asset protection plan, be prepared to go it alone from start to finish. There are some mistakes that cannot be undone by even the best attorney.

The Importance of a Power of Attorney

A Power of Attorney is one of the most important legal documents a person can have. Without a comprehensive power of attorney, many people are neither able to handle their loved ones financial matters nor make health care decisions without seeking court intervention (Conservatorship). I often have clients come into my office assume that, just because their assets are titled jointly with their spouse, parent or partner, they are able to liquidate accounts to pay bills, hire attorneys, sell their jointly titled real estate, etc. Unfortunately, that isn’t the case.

In fact, a spouse who has a jointly titled investment account with their significant other in many cases does not have authority over the entire account. This can cost a family hundreds of thousands of dollars in lost asset protection opportunities when nursing home care costs begin. In a case like that, the healthy spouse has to petition the court to become the Conservator of the institutionalized spouse and probably spend tens of thousands of dollars on her nursing home care when he could have, had she had a proper power of attorney, transferred the account into his name, alone, and done some Medicaid Title 19 asset protection planning.

What is a Power of Attorney?

A power of attorney is a legal document where one person (the principal) authorizes another (the agent) to act on their behalf. There are financial powers of attorney which allow your agent to make decisions regarding your property and healthcare powers of attorney which allow your agent to make decisions regarding your health care needs.

Your power of attorney can be broad in scope, giving your agent the ability to make any and all financial and personal decisions for you (a General Power of Attorney) or you can limit your agents authority by specifying the types of decisions you would like them to make on your behalf (a Limited Power of Attorney).

You also have a choice whether you would like your agent to have the ability to make decisions both now and if you become incompetent (a Durable Power of Attorney) or your agent can be limited to make decisions only when you become incompetent (a Springing Power of Attorney).

What is a Conservatorship?

Conservatorship of the Person is a legal relationship whereby the Probate Court gives a person (the Conservator) the power to make personal decisions for another (the ward). A family member or friend initiates the proceedings by filing a petition in the Probate Court in the district where the individual resides. A medical examination by a licensed physician is necessary to establish the condition of the individual. A Court of law then determines the individual is unable to meet the essential requirements for his or her health and safety and appoints a Conservator to make personal decisions for the individual. Unless limited by the court, the Conservator has the same rights, powers and duties over his ward as parents have over their minor children. The guardian is required to report to the court on a regular basis.

A Conservatorship of the Estate is a legal relationship whereby the Probate Court gives a person (the Conservator) the power to make financial decisions for another (the ward). The Court proceedings are very similar to those of a Conservatorship of the Person except the Court of law determines an individual lacks the capacity to manage his or her financial affairs and appoints a conservator to make financial decisions for the individual. Often the court appoints the same person to act as both Conservator of the Person and Estate for the individual. Like the Conservator of the Person, the Conservator of the Estate is required to report to the court on a regular annual basis.

The Differences

A power of attorney is a relatively low cost and private way to decide which family member or trusted friend will have the legal authority to carry out your wishes if you can no longer speak or act for yourself. If you do not have a power or attorney or if your power of attorney is not drafted properly, and something happens that results in your inability to make decisions, your family/friends may later face court proceedings and court supervised Conservatorship. A court proceeding is not only costly, but the person appointed as your Conservator may not be the person whom you would have chosen yourself. And, as stated above, not having a properly drafted power of attorney could significantly limit financial and/or Medicaid planning that could be done on behalf of the principal.