Attorney Frank Mulé discusses important incapacity documents for college students, for our Smart Counsel for Lunch Series. Please watch and if you have any questions or want to learn more please call us at 781 461-1020.
Five Things to Think About When Considering an Irrevocable Long-Term Care Trust
It’s no secret that the cost of long-term care is spiraling out of control in this country, and, consequently, it’s no wonder that more and more clients are expressing concerns to us about wanting to “protect” their assets from being depleted by the cost of such care. Clients will frequently mention either that they heard on the radio, TV, or the internet that they can accomplish this using an irrevocable trust or that they have a friend, neighbor, or relative who put their assets into an irrevocable trust for this purpose. While irrevocable trusts can absolutely be used to protect assets from being spent on long-term care, they are not a universal “one size fits all” solution, and they are not without drawbacks. With this in mind, here are five things to think about if you are considering an irrevocable trust to protect assets for long-term care purposes (an “irrevocable long-term care trust”):
- You Have to Give Up Control. Despite what numerous radio, TV, and internet ads would have you believe, you cannot protect your assets from being spent on nursing home care while retaining full control over them. Under federal and state law, assets in an irrevocable long-term care trust created by you (or your spouse) are subject to the “any circumstances” test, meaning that if there are any circumstances under which the assets could be distributed to you or used for your benefit, the assets will not be protected and would need to be spent on your long-term care before you would be eligible to receive public long-term care benefits (part of the Medicaid program, known as MassHealth in Massachusetts). As a result, in order for an irrevocable long-term care trust to function as intended, you cannot have any right to access the assets in the trust once they have been transferred into it, nor can the trustee (the person in charge of managing the trust’s assets) have any ability to distribute the assets directly to you or use them directly for your benefit. This means that, among other things, if your house is transferred into an irrevocable long-term care trust you will not be able to access its equity through a home equity line of credit or a reverse mortgage. Additionally, trust funds could not be used to directly pay for services for you, such as an assisted living facility or home health aides. Finally, while you would retain the ability to remove and replace the trustee, you could not serve as the trustee yourself and, therefore, would not be able to directly manage the assets in the trust.
- You Have to Have the “Right” Assets to Fund the Trust. When it comes to funding an irrevocable long-term care trust, not all assets are created equal. In particular, you cannot transfer tax-qualified retirement accounts (e.g., IRAs, 401(k)s, etc.) into a trust without immediate income tax consequences. This is because such accounts have to be converted into taxable brokerage accounts (or cash) in order to be transferred out of your individual name, meaning you would be taking a taxable distribution equal to the entire balance of the account. So, if you were to transfer a $300,000 IRA into the trust, you would have $300,000 of additional taxable income reportable on your personal income tax return for the year the transfer is made. Additionally, it is not generally a good idea to transfer a home with an outstanding mortgage into an irrevocable trust. This is because if you continue to pay the mortgage with your own non-trust funds, such payments could be considered additional gifts to the trust (since you no longer own the home in your individual name), which could create problems in the event you need to subsequently apply for MassHealth long-term care benefits.
- You Have to Wait Five Years Before Applying for Long-Term Care Benefits. In order to avoid the possibility of people transferring their assets into an irrevocable long-term care trust and then turning around and applying for MassHealth long-term care benefits the next day, state and federal law give MassHealth the authority to review all of your financial transactions for the 60 months (5 years) immediately preceding your application for long-term care benefits. Any and all gifts and other transfers for less than fair market value made during that time, known as the “lookback period,” are considered to be “disqualifying transfers,” which will delay the start of your MassHealth long-term care benefits for a period of time determined by the value of the assets transferred. If significant assets are transferred, this delay can last several months, if not years. Thus, an irrevocable long-term care trust is generally not a good idea unless you are confident that you will not need MassHealth long-term care benefits until after the end of the lookback period and/or you retain sufficient assets in your individual name to pay for your care needs during the lookback period.
- You Are Limiting Your Options Going Forward. A fellow practitioner once told me that he counsels clients that irrevocable long-term care trusts effectively guarantee that they’ll wind up in a nursing home if they need long-term care in the future. While this is a bit of an exaggeration, it is definitely true that an irrevocable long-term care trust severely limits your options going forward. This is because, as of now, MassHealth long-term care benefits are geared primarily towards nursing home care. Although there are some community-based long-term care benefits available, as a general rule these benefits do not cover 24/7 home health aides, nor do they generally cover assisted living facilities. Further, even within the realm of nursing home care, MassHealth long-term care benefits will only cover a semi-private room (meaning you would be sharing a room with someone else). By contrast, maintaining assets in your individual name gives you the ability to tap into those assets (through, e.g., a reverse mortgage or home equity line of credit on your home) to allow you to be cared for in the most comfortable, least restrictive setting possible for as long as possible.
- It Might Not Work. Eligibility for MassHealth long-term care benefits is governed by a complex web of state and federal statutes, regulations and court cases. These rules change frequently, particularly at the state level, and often apply retroactively, meaning that no exception is made for irrevocable long-term care trusts that were created prior to the new rules taking effect. Thus, what is permissible today may not be permissible tomorrow, and an irrevocable long-term care trust created under today’s rules may be in violation of the rules that exist at the time you apply for MassHealth long-term care benefits. Further, MassHealth has a history of aggressively reviewing and challenging applications for long-term benefits that include irrevocable trusts (the existence of an irrevocable trust must be disclosed to MassHealth even if it was created outside of the lookback period), and anecdotally most such applications appear to be denied on the first pass, necessitating a costly and time-consuming appeal.
A properly structured irrevocable long-term care trust can be an appropriate tool to protect assets from being spent on long-term care, but just like a power drill isn’t always the appropriate tool with which to fasten a screw, an irrevocable long-term care trust is not always the appropriate tool for long-term care asset protection. It is important, therefore, to consult with an experienced elder law attorney to determine the best tools to achieve your goals given your specific circumstances.
Francis R. Mulé is an associate attorney with the Dedham firm of Samuel, Sayward & Baler LLC which focuses on advising its clients in the areas of estate planning, estate settlement, and elder law matters. He is an active member and the incoming Chair-Elect of the Massachusetts Bar Association’s Young Lawyers Division. This article is not intended to provide legal advice or create or imply an attorney-client relationship. No information contained herein is a substitute for a personal consultation with an attorney. For more information visit ssbllc.com or call 781/461-1020.
© 2021 Samuel, Sayward & Baler LLC
With the month of August upon us, parents around the country are participating in the time-honored tradition of preparing their young adult children to go away to college. While it’s certainly important to ensure that they have the necessary clothing, bed linens, and other such items, it is also important to have certain legal documents in place to permit someone to make decisions and access information in the event of an emergency.
While every parent knows that a child becomes a legal adult upon turning 18, most parents fail to appreciate the full extent of the consequences. In particular, once a child turns 18, not only do parents no longer have the legal authority to make financial or medical decisions on that child’s behalf (even in emergencies), they also no longer have the legal right to access that child’s medical, financial, or educational information. This means that, without prior planning, not only would parents be unable to make medical or financial decisions on behalf of their child in the event of an emergency, they might not even be permitted to know the details of what happened or the nature of their child’s situation.
It is therefore incredibly important for college-aged children to have the following documents in place to allow decisions to be made (and information to be accessed) in the event of an emergency:
1. Durable Power of Attorney: This document designates one or more people to act on the child’s behalf regarding finances and assets (e.g., bank accounts, credit cards, student loans, etc.).
2. Health Care Proxy: This document designates someone to make medical and health care decisions on the child’s behalf if the child is unable to make such decisions.
3. HIPAA Authorization: This document authorizes the child’s health care providers to discuss the child’s protected health care information with the people named in the document. Unlike the Health Care Proxy, the HIPAA Authorization does not confer any decision-making authority on the people named in it.
4. FERPA Authorization: This document authorizes the child’s college or university to disclose the child’s protected financial and academic records to the people named in the document. As with the HIPAA Authorization, this document does not confer decision-making authority on the people named in it.
We encourage all of our clients with college-aged children to discuss these matters with their children and to contact our office if your child is interested in having these documents prepared.
One of the goals of proper estate planning is to reduce the risk of conflict in the administration of your estate and the carrying out of your wishes both after your death and during periods of incapacity while you are alive. Though we all like to think that our families (both our legally recognized families and our chosen families) and loved ones will come together and unite during times of crisis, it is unfortunately not uncommon for such crises to lead to painful, emotionally charged conflicts.
Such cases are even more common when it comes to LGBTQ individuals whose legally recognized relatives disapprove of their lifestyle. Although acceptance of LGBTQ individuals is far greater than it used to be, LGBTQ individuals still risk being disowned, shunned, and/or shamed by their relatives if and when they come out. With that in mind, I wanted to take a moment this Pride Month to talk about the particular importance of estate planning for LGBTQ individuals and families.
The most critical thing to understand is that, in the absence of estate plan documents that say otherwise, the law favors biological and legally recognized familial relationships over other relationships. Without a valid Last Will and Testament, upon your death the assets in your individual name will pass by law to your closest legally recognized relatives (known as your “heirs at law”) through a process known as “intestacy.” In Massachusetts, even if you are married, if you die without a Will, there are circumstances where your individually held assets will be distributed among your surviving spouse and your surviving parent(s).
Similarly, if you become incapacitated during your lifetime without a valid Durable Power of Attorney and Health Care Proxy, it may become necessary to have a guardian and/or conservator appointed by the Probate Court. As in the intestacy process, the guardianship and conservatorship processes favor biological and legally recognized relationships, giving priority to your spouse and parents to be appointed as your guardian and/or conservator over romantic partners and close friends.
While having a comprehensive estate plan in place can close off many opportunities for disapproving legally recognized relatives to take control of an LGBTQ individual’s estate in times of crisis and potentially shut out or cut off the individual’s chosen family (i.e., romantic partners, close friends, etc.), not all estate plans are created equal on this front. In particular, if you have an estate plan that relies on a Last Will and Testament to control the disposition of assets after death, a public probate process will need to be initiated after your death in order to validate the Will. Part of that process involves giving notice to your heirs at law. This once again gives disapproving relatives an opening to object to the proceedings and attempt to assert control over your estate.
By contrast, a comprehensive estate plan designed to avoid the probate process will greatly reduce the ability of disapproving relatives to cause trouble. While the probate process requires that notice be given to those who would inherit in the absence of a Will even if they are not named as beneficiaries in the Will, under a Revocable Living Trust, only the beneficiaries named in the trust document are entitled to notice. Thus, if you want to ensure that your wishes are followed and that the people you choose to carry out those wishes are able to do so without interference, you should contact an experienced estate planning attorney and create a plan to achieve your goals today.
Francis R. Mulé is an associate attorney with the Dedham firm of Samuel, Sayward & Baler LLC which focuses on advising its clients in the areas of estate planning, estate settlement and elder law matters. He is an active member and the incoming Chair-Elect of the Massachusetts Bar Association’s Young Lawyers Division. This article is not intended to provide legal advice or create or imply an attorney-client relationship. No information contained herein is a substitute for a personal consultation with an attorney. For more information visit www.ssbllc.com or call 781/461-1020.
© 2021 Samuel, Sayward & Baler LLC
Attorney Francis R. Mulé discusses Probate Court Delays, for our Smart Counsel for Lunch Series. Please watch and if you have any questions or want to learn more please call us at 781 461-1020.
They say that patience is a virtue, and when it comes to Massachusetts’ probate courts, they are right. Capacity limits imposed as a safety precaution to mitigate the spread of COVID-19 mean that court personnel across the Commonwealth are operating on a rotating schedule such that only a limited number are physically in the various courthouses at any one time. Naturally, this severely limits the courts’ capacity to process mail and issue important documents like Letters of Authority and Decrees and Orders of Complete Settlement, which require official stamps and seals. Our contacts at one courthouse have told us that they are as much as three months behind on processing their incoming mail as a result of the capacity limits. The limited staffing issues, coupled with the significant increase in the number of estates needing to be probated as a result of the 17,000+ deaths attributed to the pandemic over the past year, have placed a severe burden on the probate courts.
Beyond the issues created by COVID-19, there are county-specific issues that are exacerbating these delays. In Norfolk County, for example, the long-serving Register of Probate was elected Sheriff this past November and the new Register is, understandably, still learning the ropes. Meanwhile, Middlesex County not only split its Probate Court into two divisions last spring, its southern division moved from its longtime home in Cambridge to Woburn last fall and it unexpectedly lost one of its most experienced staff members around the same time.
As you can imagine, all of these factors combined have led to extreme backlogs at several courthouses such that even the processing of routine, uncontested cases can take weeks, if not months. While you can rest assured that we are diligently pursuing every avenue possible to ensure that our probate cases are processed in as expeditious a manner as possible, ultimately it will take time for the courts to work through these backlogs.