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Estate Planning


Estate planning, among other things, includes documents to take care of rights and possessions upon incapacity or death.


Typical Basic Estate Planning Documents


1.Last Will and Testament:  Transfers title from decedent to beneficiaries.


First, the “testator” is the person who executes a will, and what the testator owns at the time he or she dies is his or her estate.  That portion of a testator's estate that does not automatically pass to a new owner ends up in the testator's probate estate.  An effective will determines who gets what part of the testator's probate estate when the testator dies.


When someone dies without a will, state law determines who gets the decedent's property.  While the state rules may not differ a great deal from what a given decedent actually would want, e.g. all community property to the surviving spouse then to the kids (IF all kids are children of the marriage), many times the state rules most certainly do not accomplish what the decedent would have preferred.  Where either spouse has children outside the marriage, where the parents already have distributed a portion of their estate to one child and not another, where the parents would prefer not to give an outright gift to a troubled or disabled child, or where other unique factors are present, the state's rules might prove entirely inadequate or even unjust.


2.Statutory Durable Power of Attorney:  Grants to agent(s) authority to act in financial matters for the grantor or principal.  Power ceases at death of grantor.


3.Medical Power of Attorney: Grants to agent authority to make medical decisions for the grantor or principal.  Power ceases at death of grantor.


By not giving some appropriate person or persons the financial or medical authority to act, an adult person who does not have the mental and/or physical capacity to manage his or her own financial or medical affairs can increase the burden for loved ones and other care-givers who are trying to help them.  Banks, insurance companies, investment advisors, and similar people and institutions often will not deal with an incapacitated person’s business with family members or others who do not have the legal authority to act.  Similarly, doctors and other medical care providers may not to discuss a patient’s physical status, medical history, or treatment options even with close family members who do not have proper documentation.  Of course, some adults disabled from childhood possibly never had the capacity necessary to authorized others to act for them.  Nevertheless, in the absence of effective powers of attorney, obtaining an expensive and burdensome guardianship may offer to the care-giver the only effective means of helping an elderly or disabled individual.


Clients frequently ask what one thing could they do to make it easier for their family members to care for them as they age, and the simplest answer might be to execute effective and robust financial and medical powers of attorney.  Caring for an aging or disabled person can exhaust a care-giver mentally and physically under the best circumstances; not having the legal authority to act for the person only adds to the difficulties of the care-giver.


4.HIPAA Release: Grants to agent(s) authority to obtain medical information about the grantor or principal.

Privacy laws may prevent doctors and other care-givers from discussing the condition and treatment options of even close family members.  Although a power of attorney may grant one or more individuals the authority to receive information and make decisions regarding a sick or injured person, that person might want to allow other family members or even friends to have the authority to inquire about the person’s condition or treatment.


Interestingly, the HIPAA release can survive the person’s death allowing family members or other legal representatives to seek information to press a wrongful death claim or malpractice claim or to compel an insurance company to pay for covered expenses.


5.Directive to Physicians: Expresses an individual’s wishes regarding end of life medical care if terminal or permanently and completely incapacitated.


In some places called a living will, a directive will let your family and other care givers know what you would prefer if they are faced with a decision to end treatment or to continue treatment that you would have prevented if you were able to communicate your wishes.


6.Declaration of Guardian: Names preferred guardian if needed and/or excludes one or more individuals from consideration as guardian.

If a person becomes incapacitated, a court may have to name someone to care for the person’s physical or financial affairs.  The individual appointed to care for the person is the guardian.  The person needing the care is the ward.


Generally, a person might prefer one or more particular individuals to be named as guardian if ever the need arose.  However, even if a person had no preferred guardian, the person could name one or more individuals he or she definitely would not want to be guardian.  In most cases, a court would prefer the guardian be closely related to the person, for example, a parent, child, or sibling.  Even so, a court considering a guardianship would consider the proposed ward’s preference for someone other than family, but the proposed ward cannot force the court to choose a particular individual.  That being said, the court probably would avoid naming an individual that the proposed ward definitively excluded while he or she had the capacity to do so.


Other Important Estate Planning Issues


Effective estate planning can accomplish far more than the goals implied or stated in the discussion on basic estate planning documents above.  Most people prefer to avoid or reduce federal or state estate taxes, so tax planning probably constitutes the most common reason for estate planning aside from the general need to dispose of one’s property upon death.  Other folks have very particular ideas about how their estate should be distributed and develop intricate plans to put those ideas into effect.  Business owners may wish to provide for smooth management and ownership transitions as they become less involved or less able to participate in day-to-day decision-making.  In fact, there are an infinite number of ends a person might want to accomplish with his or her estate planning besides merely avoiding taxes or passing their property to their descendants.  To illustrate the range of estate planning objectives, a person might want to create or help fund an entity to care for a disabled child, a pet, a charity, a church, or a favored cause.  A person might want to encourage his or her descendants to obtain college educations and may provide both positive and negative incentives to do so.  Some people leave money to construct buildings for colleges or other public uses; some leave money to scholarship funds to assist the less fortunate or to promote research in particular fields of study.  With sufficient imagination – and money – a person can much that he or she might wish with the property that he or she leaves behind.


Importantly, the effects of good estate planning can start long before the death of the planner.  Aside from reducing the stress of uncertainty on family relations or business transitions, strategic gifting and transferring assets into and even participating in entities designed to benefit family or particular causes allows planners to enjoy the effects of their planning while still alive.



Medicaid Planning


The cost of care for an elderly or disabled person can run to thousands of dollars per month and, even taking advantage of certain public benefits, can drain a person's resources, including those he or she hoped to leave to children or other beneficiaries.  Although the problems develop primarily in financial terms, accessing assistance from Medicaid often involves significant legal issues.  Accordingly, legal assistance in Medicaid planning can accomplish a number of desirable goals that financial planning alone cannot.  What follows are common Medicaid planning goals and issues, but many more could be discussed.  Moreover, not all of these are relevant for every Medicaid plan.


First, effective Medicaid planning helps avoid the expense of unsuccessful applications for assistance.  A substantial body of state and federal law along with several regulatory agencies, each with their own rules and procedures, govern Medicaid eligibility.  Although designed to be accessible and understandable to the general public, the fact is that even if an applicant or an applicant's loved ones have the time, wherewithal, and desire to struggle through the process on their own, the sheer volume of relevant information can multiply missed opportunities and increase the risk of a denial. Medicaid may take months to determine whether an applicant is eligible for nursing care.  In the meantime, the applicant or the applicant's family may incur tens of thousands of dollars in avoidable nursing home expenses.  If the applicant ends up ineligible after all, then there will be no reimbursement for those expenses.


Good legal counsel cannot eliminate the risk of ineligibility, but it certainly can improve the applicant's chances.  Medicaid often ends up denying an applicant over an issue or a mistake that an attorney experienced in elder law and Medicaid applications can spot and plan for.  A common experience is for an applicant to be denied for one problem, when in fact the applicant might have one or more other problems discovered only after multiple applications, multiple denials, and more months of expensive un-reimbursed care.  The Medicaid worker cannot offer advice nor will the worker often point out other issues that would have resulted in denial.  Effective legal assistance does not come cheap, but it can be a bargain compared to two or three months or more of nursing care expenses.


Effective Medicaid planning may require multiple legal documents and having that work done by a licensed attorney should be another good planning objective.  Legal forms downloaded off the Internet and legal software purchased at the local office supply store can provide inexpensive and legally effective powers of attorney, wills, trusts, and other legal instruments.  However, blended families, community property considerations, and a host of other sometimes obscure complications can render such efforts useless or worse, e.g., unexpectedly producing perverse or extremely  undesirable results.  If producing a successful Medicaid application seems like a daunting task, producing effective legal documents with no legal training should seem at least a little difficult.  It probably is redundant to point out that a person’s experience with financial planning or his or her supposed supervision by a distant, uninvolved lawyer does not substitute for effective legal counsel.  Nowhere else is the adage more true that “you get what you pay for.”  In fact, poorly drawn or inappropriate legal papers actually can cost a great deal more than nursing care.


Another goal of effective Medicaid planning for a person is to incorporate provisions for the eventual probate estate, if any.  The probate estate is the property a person owns when he or she dies that does not pass to a new owner under a beneficiary designation or some other non-probate device effective upon the person’s death, for example, the termination provisions of a trust created by the person.  The good reason for thinking about probate in Medicaid planning is that long-term care decisions and end-of-life plans logically should include deciding what to do with one’s stuff when he or she dies.  Another good reason is that the State of Texas can recover what the State spent on a person’s care from his or her probate estate.  Logically, the way to preserve some or all of the person’s estate for his or her descendants or other beneficiaries is to reduce or eliminate the probate estate.  In fact, it is precisely this logic that allows many Medicaid recipients in Texas to pass their homesteads on to their children or other beneficiaries without exposing the home to the Medicaid Estate Recovery Program or MERP.


Including probate considerations in Medicaid planning becomes even more crucial when a Medicaid applicant still has a spouse at home or elsewhere in the community.  In addition to complicating the legal and financial elements of effective planning, often the institutionalized spouse has transferred assets to the community spouse during the application process.  If the community spouse then dies unexpectedly, the institutionalized spouse could receive all or part of the estate disqualifying the survivor from Medicaid and forcing him or her to spend the distribution unnecessarily on long-term care expenses.  Moreover, the goals of 1) minimizing the probate estate and 2) providing for the institutionalized survivor may be in conflict with each other requiring more imaginative and flexible legal drafting best done by an attorney familiar with both estate planning and Medicaid planning.


Please note that effective Medicaid planning can occur well before nursing care becomes necessary. As in most planning situations, increasing the planning period often increases the available options.  While the person contemplating a Medicaid application in the future still has the capacity to participate in the planning process, he or she can execute legal instruments, begin accumulating verification documents, start restructuring assets, and develop appropriate spending plans all without the pressure of accumulating nursing care expenses.  Even if the person cannot fully participate, his or her family can take steps to prepare for an application when, and if, it becomes necessary.


Finally, a common element of effective planning involves gifting, either dealing with gifting done already during the five-year look-back period or developing a gifting plan to qualify for benefits, if necessary or desirable.  Medicaid imposes a penalty for most transfers for less than fair market value made within five years of a Medicaid application.  The penalty imposed depends directly on the size of the gift or transfer and is implemented by Medicaid not paying nursing home expenses during a penalty period, although Medicaid does provide medical care if the applicant is eligible except for the gift.  Some gifts are exempt from penalty, e.g., gifts of any size to a spouse, and sometimes Medicaid will not impose a penalty if the applicant can prove that the gift was not made in order to qualify for benefits, but the standard of proof is set very high.  Nevertheless, gifting can be an effective planning technique under certain circumstances.