Forbes.com Article Highlights Family Feuds in the Probate Process

While I work with my clients to eliminate many of these challenges during the estate planning process, I saw the issues highlighted by this forbes.com article on probate and family feuds pop up all too often in my time as a probate judge, among those clients who come to me after a loved one with no estate plan has passed, and when do-it-yourself estate planning documents lack the detail and clarity needed to avoid will contest litigation. As with most aspects of estate planning, in my experience, preventing these issues from becoming problems involves carefully determining your wishes and making sure your will and trust documents are carefully drafted to make sure those wishes are carried out. 

If you want to make sure your estate plan is drafted to avoid these and other potential pitfalls call the offices of Fabisch Law, L.L.C. to set up a consultation with Rhode Island Probate Lawyer Matthew Fabisch at 401-324-9344.

Why a will is not enough (or why your estate plan should include a revocable trust)

Your will is a legally binding statement directing who will receive your property upon your death. It also appoints a legal representative, often called an “executor” or “personal representative,” to carry out your wishes. The process by which a person’s property is passed to the people or institutions named in the will is called probate. However, a will covers only probate property. Many types of property or forms of ownership pass outside of probate. Examples of property that pass outside of probate and, thus, are not mentioned in a will, include: jointly-owned property, property in a trust, life insurance proceeds, and property with a named beneficiary, such as IRAs or 401(k) plans.

A trust is a legal arrangement through which one person (or an institution, such as a bank or law firm), called a “trustee,” holds legal title to property for another person, called a “beneficiary.” The rules or instructions under which the trustee operates are set out in the trust instrument. There can be a number of advantages to establishing a trust, depending on the individual situation. Particularly important for the basic estate plan, revocable or living trusts give the donor complete control over the trust. The donor may amend, revoke or terminate the trust at any time. The donor can take back the funds he put in the trust or change the trust’s terms. The donor can also title other assets, including non-probate assets in the name of the trust. Thus, the donor is able to reap the benefits of the trust arrangement while maintaining the ability to change the trust at any time prior to death.

Revocable trusts are generally used for the following purposes:

1. Asset management. They permit the trustee (the person who manages the trust) to administer and invest the trust property for the benefit of one or more beneficiaries of the trust.

2. Probate avoidance. At the death of the person who created the trust, the trust property passes to whomever is named in the trust. It does not come under the jurisdiction of the probate court and its distribution need not be held up by the probate process. However, the property of a revocable trust will be included in the donor’s estate for tax purposes.

3. Tax planning. While the assets of a revocable trust will be included in the donor’s taxable estate, the trust can be drafted so that the assets will not be included in the estates of the beneficiaries, thus avoiding taxes when they die.

4. Disability planning. Wills only provide for death. Trusts can help a person have a plan in place in the event of their own illness.

Medicaid's Rules on Giving Away Your Assets and Qualifying for Nursing Home Long Term Care

In order to be eligible for Medicaid, you cannot have recently transferred assets. Congress does not want you to find out you need nursing home care on Monday, give all your money to your children (or anyone else) on Tuesday, and qualify for to have the government pay for your nursing home long term care by qualifying for Medicaid on Wednesday. So it has imposed a penalty on people who give away assets without receiving fair value in return.

This penalty is a period of time during which the person transferring the assets will be ineligible for Medicaid. The period is determined by dividing the amount transferred by what your state Medicaid program determines to be the average private pay cost of a nursing home in your state.

Example: For example, if you live in a state where the average monthly cost of care has been determined to be $5,000, and you give away property worth $100,000, you will be ineligible for benefits for 20 months ($100,000 / $5,000 = 20).

In 2015 the State of Rhode Island has determined that the average private pay cost of nursing home care is $9,113 per month. Massachusetts, which determines the cost on a daily basis, has determined that the number is $300 per day.

Another way to look at the above example is that for every $5,000 transferred, an applicant would be ineligible for Medicaid nursing home benefits for one month. In theory, there is no limit on the number of months a person can be ineligible.

Example: The period of ineligibility for the transfer of property worth $400,000 would be 80 months ($400,000 / $5,000 = 80).

A person applying for Medicaid must disclose all financial transactions he or she was involved in during a set period of time -- frequently called the "look-back period." The state Medicaid agency then determines whether the Medicaid applicant transferred any assets for less than fair market value during this period. The look-back period for all transfers is 60 months.  

Under the current law, the Medicaid eligibility penalty period will not begin until (1) the person making the transfer has moved to a nursing home, (2) he has spent down to the asset limit for Medicaid eligibility, (3) has applied for Medicaid coverage, and (4) has been approved for coverage but for the transfer. 

Returning to the example above, if an individual transferred $100,000 on April 1, 2014, moves to a nursing home on April 1, 2015, and spends down to Medicaid eligibility on April 1, 2016, that is when the 20-month penalty period will begin, and it will not end until December 1, 2017.

In other words, the penalty period would not begin until the nursing home resident was out of money, meaning there would be no money to pay the nursing home for however long the penalty period lasts. In order to make sure your parent is able to receive the nursing home care they need, it is critical to make sure they make adequate arrangements with an elder law lawyer before gifting away their money or property.  

If you need assistance understanding how any of these numbers impact you or a family member's eligibility for nursing home coverage through medicaid, or  with a probate,  estate planning or other elder law matters call the offices of Fabisch Law, L.L.C. to set up a consultation with Rhode Island Nursing Home Lawyer Matthew Fabisch at 401-324-9344.

Key Information for Rhode Island Nursing Home Medicaid Coverage for 2015

Protections for the Community Spouse

Community Spouse Resource Allowance (CSRA):	Minimum: $23,844 Maximum: $119,220
Increased CSRA:	Not permitted.
:	Actuarially sound annuities are permitted.
Monthly Maintenance Needs Allowance:	Minimum: $1,966.25 Maximum: $2,980.50
For explanation, click here.

Transfers

Average monthly cost of nursing home care according to state:	$9,113
For explanation, click here.
Has a Long-Term Care Partnership program been implemented?	Yes
For explanation, click here.

Income

Is the state an "income cap" state?	No
For explanation, click here.

Estate Recovery

Has the state expanded the definition of "estate" beyond the probate estate?	No
Has the state included a hardship provision in its estate recovery plan?	Yes
For explanation, click here.

Home Equity Limit

The state Medicaid program will not cover long-term care services for those with home equity above this limit, with certain exceptions.	$552,000
For explanation, click here. If you need assistance understanding how any of these numbers impact you or a family member's eligibility for nursing home coverage through medicaid, or  with a probate,  estate planning or other elder law matters call the offices of Fabisch Law, L.L.C. to set up a consultation with Rhode Island Nursing Home Lawyer Matthew Fabisch at 401-324-9344.