Unintended Consequences: the pitfalls of "inter vivos" transfers

     Our law firm spends a lot of time working with individuals and married couples to pay for long term care expenses.  A typical plan involves organizing a client's assets to enable them to qualify for VA or Medicaid benefits that can pay long term care costs, allowing the client(s) to preserve a financial cushion to pay for the "extras" and protect a surviving spouse from poverty.

     Without planning, most clients do not have enough savings to pay for a long stay in the nursing home.  By default, everyone is on something known as the "Medicaid Spend Down" plan.  Once a married couple has spent their savings down to approximately $120,000 in Georgia, or $68,000 in South Carolina, Medicaid will supplement the institutionalized individual's income to pay the Nursing Home bills.  A single individual must spend her savings down to $2,000 in Georgia or South Carolina before Medicaid benefits kick in.  There are two big issues with the "Medicaid Spend Down."  First, married couples risk losing all of their savings to the sick spouse's nursing home bills, leaving the surviving spouse with limited financial security.  Second, individuals and surviving spouses are left without a financial cushion to pay for "extras," such as a private room.

     To get around the "Spend Down" plan, some may be tempted to just give all of their assets away to their children.  This is almost always a bad idea.  Life-time ("inter vivos") transfers expose assets to children's creditors and divorce settlements.  These transfers also result in a total loss of control over assets, meaning that life savings may not be available in the future if needed to supplement care.  Finally, this plan can leave a person in a huge dilemma if Nursing Home care is needed within 5 years of the transfer.  For example, imagine an individual gives away all of her assets to a child but needs Nursing home care in the same year.  If she applies for Medicaid, she will be assessed a penalty, which amounts to a period of time that Medicaid will not pay nursing home bills.  The penalty period increases depending on the value of what was transferred.  Under these circumstances, the individual would not qualify for Medicaid benefits and has no money to pay for nursing home care out of pocket.  This is the worst possible scenario for someone who needs nursing home care.

   Both Georgia and South Carolina have "filial support laws" that hold children accountable for the unpaid nursing home bills of impoverished parents.  Although these laws seems unfair on paper, it is likely that legislators enacted them as a response to the "inter vivos" transfer of assets to children as a means for obtaining Medicaid benefits.

     Due to the intricacies of the law and potentially devastating consequences of improper transfers, long term care planning and asset protection should be accomplished under the direction of an experienced elder law attorney who understands the interplay between the Medicaid and VA rules and regulations.

Why should you see an estate planning attorney? Let me explain ...

     "I don't have an estate, why do I need an estate plan?"  I cannot tell you how many times I have heard this question as an estate planning attorney.  Most individuals, whether they know it or not, have an estate.  For example, most clients own a home, vehicle and have at least one checking account.  Just having these three things could cause a number of complications if organization and planning is not completed on the front end.

     Consider an elderly client who is not married but has a number of children and grandchildren.  The client owns a home in Georgia and a small farm in South Carolina.  He also has three vehicles, some valuable farm equipment, a checking account and a CD.  The client has not consulted an estate planning attorney and has no Will in place.  When he passes away, probate will be required in his state of residence (Georgia).  Additionally, an ancillary probate will be required in South Carolina where he owned the farm.  Typically, the surviving family members will hire an attorney to handle the probate process, which requires court supervision.  After all the paperwork has been filed, notice given to all heirs, title transferred and accounts closed, the estate will be closed.  This process typically takes anywhere from 2 to 12 months, depending on the complexity of the estate, and the legal fees can add up quickly.

     In many circumstances where two probates may be required, the client can avoid BOTH probates with a properly funded Living Trust.  The Living Trust is a valuable planning tool that allows the client to retain total control and access to his property during life and transfers the assets to beneficiaries, outside of probate, at death.

     The need for a Will can be emphasized by numerous examples.  Consider that one of the client's children has special needs and is receiving government assistance.  The receipt of a large inheritance can cause that child to lose those benefits, resulting in complications for that child and the loss of the client's assets that could have been preserved through a testamentary special needs trust.  Consider a young client who has minor children.  The Will can be used to designate a guardian in the event that she unexpectedly passes away.

     These examples are just a small sample of the issues that an experienced estate planning attorney is trained to spot and plan for.  If you haven't taken the time to consult an experienced estate planning attorney, there is no better time than now.

The importance of long term care planning - an all too common story

     The individuals named in the story are fictitious.

     Peggy and her husband, John, got married at a young age.  After a wonderful marriage lasting over 60 years, John became sick and required around-the-clock care.  Peggy did everything she could to take care of John herself; however, after a few months, she began to have medical problems of her own that prevented her from providing John with the care he needed.  Reluctantly, Peggy had to find a skilled nursing facility to take care of John.

     The couple had always been frugal and saved about $350,000 over their lifetime.  They owned their house outright.  Over time, the nursing home bills significantly ate into Peggy and John's lifetime savings.  When John finally passed away, Peggy was left with only a small fraction of what was saved over a lifetime.  She would survive him by 15 years, living mainly off of Social Security.

     We have seen stories similar to this one much too often.  Please take the time to seek counsel from an Attorney with the knowledge and ability to help you protect your hard-earned savings from the costs of long term care.

     DISCLAIMER:  The content of this blog is intended for informational purposes only.  It is not intended to solicit business or to provide legal advice.  Laws differ by jurisdiction, and the information on this blog may not apply to every reader.  You should not take, or refrain from taking, any legal action based upon the information contained on this blog without first seeking professional counsel.

     Your use of the blog does not create an attorney-client relationship between your and Burroughs Elijah, LLC.  While we are happy to have you contact us, merely contacting Burroughs Elijah, LLC or any Attorney affiliated with Burroughs Elijah, LLC does not create an attorney-client relationship until an agreement has been reached between you and the firm to handle a particular matter.  Because unsolicited confidential information may not be subject to an attorney-client privilege and may not be treated as confidential, you should not send confidential information to the authors of this blog without first speaking to one of us and receiving authorization to provide confidential information.  Receipt of unsolicited confidential information by Burroughs Elijah, LLC or one of our attorneys will not disqualify the firm from representing another party in any matter to which the information relates.  Burroughs Elijah, LLC will also have no duty to keep any such unsolicited information confidential prior to the formation of an attorney-client relationship.  Burroughs Elijah, LLC does not desire to represent anyone desiring representation based upon viewing this blog in a jurisdiction which this blog fails to comply with all laws and ethical rules of that jurisdiction.  To the extent permitted by law, Burroughs Elijah, LLC disclaims liability to any person for any loss which may arise from relying on or by using information contained on this blog.  Although the information on this blog is intended to be current and accurate, it is not guaranteed or promised to be current, accurate, or complete.  This blog contains links to other web sites.  Burroughs Elijah, LLC makes no guarantees or promises regarding these web sites and does not necessarily endorse or approve of their content.

     The contents of this blog, the name Burroughs Elijah, LLC, and the logos used on the blog are protected by the copyright laws of the United States and other jurisdictions.  You may print a copy of any part of this blog for your own persona, noncommercial use, but you may not copy any part of the blog for any other purposes, and you may not modify any part of the blog.  Inclusion of any part of this blog in another work, whether in printed or electronic, or other form, or inclusion of any part of the blog in another web site by linking, framing, or otherwise without the express permission of Burroughs Elijah, LLC is prohibited.