LONG-TERM CARE PLANNING:
SPECIAL NEEDS TRUST FOR THE ELDERLY CLIENT
BY SEAN L. ROBERTSON, PARTNER
Robertson Law Group, LLC
9923 S. Ridgeland Avenue, Suite 99
Chicago Ridge, Illinois 60415
w) 312-498-6080 f) 312-377-2480
This article is for Educational Purposes Only. Consult with an Attorney about your specific circumstances, which may make these suggestions impractical or unwise.
Long-term care planning is the planning process of attempting to preserve an elderly person’s assets or provide a supplement to the governmental assistance that an elderly person may need to live a more comfortable life. As one attorney stated, elder law is “late life legal planning.” Nursing home expenses deplete the comfortable lifestyle of an elderly person or their family. A special needs trust is a planning device that enables an elderly person to protect their assets against dissipation. A special needs trust also allows an elderly beneficiary to preserve their assets and to supplement government spending that the Illinois Department of Human Services will not pay for. For example, Medicaid, a federal medical assistance program for the poor will pay for long-term care nursing care expenses of indigents. However, Medicaid will not pay for extra amenities such as a private room or traveling expenses (may not pay for). Therefore, long-term care planning is a strategy to preserve a senior’s assets and assist a senior to live a more compassionate life similar to their accustomed standard of living.
Several planning techniques are available for a senior or senior’s family member to preserve the assets of a senior. First, we must evaluate legal and ethical rules surrounding elder planning. Federal law prohibits certain asset transfers of property that are made to qualify for Medicaid. Congress passed a law nicknamed “Granny Goes to Jail Law” because of the criminal liability to persons who assisted or counseled a Medicaid applicant in making a transfer for purposes of qualifying for Medicaid. Therefore, long-term care planning is not fraudulent or designed to deceive the federal government or State of Illinois. In contrast, long-term care planning is a process of taking advantage of current law to assist a senior to meet their late life legal planning goals. Advanced planning is necessary to avoid fraudulent transfers.
Medicaid is a federal program, which is administered by the States. In Illinois, the Illinois Department of Human Resources is responsible for administering the State of Illinois’s Medicaid plan. To qualify for Medicaid in Illinois, a senior must possess $2,000 or less in assets. Thus, Medicaid is for seniors who lack means or middle class or wealth seniors that aim to preserve their assets and live a more comfortable late life. In determining what is an asset, Illinois has a two-prong approach. First, Illinois labels assets as exempt and non-exempt assets. Exempt assets are assets that are not counted for public policy reasons. In contrast, non-exempt assets are assets, which are counted and are includable in determining whether a senior qualifies for Medicaid.
The first planning strategy to qualify for Medicaid is to shelter your assets into exempt assets when you suspect that a senior may need long-term care planning. Exempt assets include some of the following: a primary residence, household furnishings & personal effects, and assets not in Medicaid applicant’s ownership. Examples of non-exempt assets include a banking account and liquid cash. There are a couple of rules to consider when considering a long-term care planning strategy. First, asset transfers within 36 months to 60 months may not avoid these exempt assets from being counted as non-exempt assets for Medicaid purposes. A “look back” provision enables the government to pretend that a transfer did not occur if it was within 36 months to 60 months of a Medicaid application. The government is aware many seniors hire attorneys to assist them in qualifying for Medicaid. Seniors who aim to preserve their assets from government intrusion should consider gift tax strategies. A senior may gift up to $10,000 per year to children, family members, or loved ones without incurring a gift tax penalty. If the senior is married, the allowable gift amount may increase to $22,000 per year. Therefore, a senior should consider gifting multiple gifts to children, family members, and friends to preserve their assets.
Additionally, seniors should consider transferring their home to the community spouse. A community spouse is a spouse that is married to a senior who is receiving the assistance of Illinois Department of Human Services. The transfer of a home to a community spouse is allowable under Illinois law. Be careful not to use the institutionalized spouse’s assets to pay the mortgage, improve the home, and pay real estate taxes. This may cause the transfer of the home to be considered a non-exempt asset. After the house has been transferred, the community spouse may sale the house and use the proceeds of the sale to establish a special needs trust. The proceeds of the sale of the house are not considered and are exempt from being considered by the Illinois Department of Public Aid. The transfer of property to the community spouse will prevent the institutionalized spouse from being disqualified for public assistance if the community spouse predeceases the institutionalized spouse. This is due to the institutionalize spouse having the ability to sell the home and use the proceeds of the sale of the home for their long-term care needs.
Moreover, a senior should consider transferring a home to a child who is 21 years of age or under. With this strategy, a senior should consider a trust to help preserve the assets from an irresponsible young adult. This strategy helps preserve the home within the senior’s family.
Next, a senior should use liquid assets such as checking accounts to purchase household furnishings and personal effects. A personal or household item is an exempt asset if it is for the institutionalized senior’s personal or household use. An attorney must be careful that personal or household items are not classified for investment purposes.
A senior also should consider using liquid assets to purchase a cemetery plot, establish a burial fund, or purchase a burial insurance policy irrevocably assigned to a funeral home in purchase of a burial service contract.
Furthermore, a senior should utilize liquid cash to purchase a residence if one is not owned. Remember that a personal residence is an exempt asset and not considered for Medicaid eligibility.
Moreover, a senior should consider purchasing an annuity where they have no access to the principal. This method is useful because a senior is turning non-exempt assets into monthly income payments. Monthly income payments if structured correctly help a Medical applicant turn a non-exempt asset into an exempt asset. This also provides some immediate support for the senior without jeopardizing Medicaid eligibility. Be careful and make sure that a senior’s age is considered when purchasing an annuity. If the annuity is not structured correctly, the monthly income may not be exempt for Medicaid purposes.
Finally, a special needs trust should be considered. A special needs trust is a trust where income is distributed for the “special needs” of the senior beneficiary that are not provided for by government entitlements. Special needs refer to the requirements for maintaining the beneficiary’s good health, safety, and welfare whey they are not provided for by a state or federal government body. Hence, a special needs trust is aimed to supplement state expenditures. A special needs trust is designed to pay for items of personal convenience when the Illinois Department of Human Services refuses to pay. For instance, Alice sets up a special needs trust where her son, George, is the trustee (person responsible for following Alice’s wishes). Alice travels every August to her family reunion in Florida. The Illinois Department of Public is unlikely to pay for Alice’s trip. A special needs trust is a supplemental trust that pays for items that are not provided for by a government body. Therefore, a special needs trust’s goal is to pay for recreation, home improvements, vacation, and other personal items that make a senior’s living more comfortable and similar to their standard of living. Most people incorrectly believe that their assets will not be depleted due to ill health. Unfortunately, many well-to-do seniors have experienced a total depletion of their assets by the high costs of nursing homes and medical bills. Often times, long-term care policies are good but not good enough.
In conclusion, a senior who aims to live a more comfortable living situation upon later life should consider employing some of the discussed strategies. Typically, long-term care planning should be considered if a senior is concerned about ailing health in the near future. Remember, the more you plan the more opportunity your attorney has to preserve your assets and assist you in living a more comfortable lifestyle if you were to become sick or disabled.
Sean L. Robertson, is a Partner and Wealth Preservation Attorney with Robertson Law Group, LLC. Sean concentrates his practice in Wills and Trusts, Elder law, Medicaid Asset Protection, and Probate and Guardianship law. Sean can be reached at 312-498-6080 or RobertsonLawGroup@gmail.com.