Estate planning for the elderly involves dealing with multiple concurrent issues that affect the aging population.
The elderly may have accumulated assets that they wish to pass on to more junior family members. But at the same time they should plan for present or future long-term care needs, including nursing home care. Planning for the elderly includes, for example, finding ways to preserve and/or transfer assets without causing ineligibility for Medicaid. It also includes planning for disability or incapacity by using durable powers of attorney, trusts, and health care proxies for financial management and health care decision-making.
Asset Transfer Planning
There are strict rules penalizing gifts of certain assets made less than five years before applying for Medicaid (called “Medical Assistance” in Pennsylvania). The goal of asset transfer planning is to successfully “spend down” and/or give away the assets of people anticipating needing long-term care in order to enable them to qualify for Medicaid. Medicaid annuities, life estates, and income-only trusts are examples of asset transfer planning.
Income-only trusts are irrevocable trusts created by a future Medicaid applicant or his/her spouse. Grantors of these trusts are subject to waiting 60 months for Medicaid eligibility. During the lifetime of the grantor, the trust income is typically payable to the grantor, the grantor’s spouse, or other beneficiaries at the trustee’s discretion. The principal is retained in trust or payable to beneficiaries other than the grantor or the grantor’s spouse. At the death of the grantor, the trust may either terminate or continue.
A life estate can effectively protect a Medicaid applicant’s home from estate recovery. A life estate is a form of joint ownership of property between two or more people. They each have an ownership interest in the property, but for different periods of time. The person holding the life estate possesses the property currently and for the rest of his or her life. The other owner has a current ownership interest but cannot take possession until the end of the life estate, which occurs at the death of the life estate holder.