2015-08-07 Elder Law Q&A with John Watts

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Welcome to our Q&A on elder law issues. The entire video is above, and the transcript is below.

I hope you enjoy!

John Watts =============

Hello.

My name is John Watts and I want to welcome you to our question and answer session on elder law and estate planning. I’m a lawyer in Alabama. I have an office in Madison, Alabama and our main office is in Birmingham, Alabama. We represent people all over the state. We have elder law clients from the northern part of the state, southern part and really everywhere in between. Today, what we’re going to do is answer some questions we’ve received over the last couple of weeks. I realized it has been maybe a month since we last did this on elder law issues.

We’ve got a little bit of a backlog to clear through but we’ll start doing this every Friday and if you would like to ask a question, you can leave a comment below this and we’ll answer it on the next session or you can contact us through our website Alabama Elder Lawyer or you can even call us at 205-879-2447. We got about 6 questions and we’ll keep this about 30 minutes or so.

Our first question has to do with Medicaid and that is “what is the look back period?”

If you know about Medicaid then you’re familiar there’s a 5-year look back period or even if you’re not that familiar with it, you may have heard there’s something where Medicaid is going to look back in time when we applied for Medicaid.

What is that look back period?

Here’s the situation, if today is August 7, 2015, so if I applied for Medicaid today and I’m qualified for Medicaid, then they look back 5 years in time. What are they looking for over here? They’re looking for gifts. What’s a gift? A gift is where I’ve transferred something like money, a boat, property, whatever it maybe. I’ve transferred something in an exchange I’ve not received the full fair market back. If it’s a $10,000 boat and somebody pays me 2,000 for it and it really has a value of 10,000 well that’s a gift of 8,000. If I just give it away and get zero in return, that’s a $10,000 gift. It’s true with bigger numbers too.

If I have a half million dollar house and I give that to my kid and there’s certain exceptions that apply. We’re not getting all those exceptions, keep them the general, the high level of this law without getting bogged down in the details but if I give away half a million dollar house to a kid, that’s a half million dollar gift. I apply and I qualify. That’s critical. To qualify now, you got to look back 5 years, 60 months and all this time period they’re saying, “What are the gifts that you have made?”

That’s what the look back period is. I believe our next question has to do with the penalty period but that is the look back. We apply the look back 5 years, and let me just say this, 1 implication of this is if … and I use this example, say, last week. I was training the lawyers all over the State of Alabama on Medicaid. I gave this example, what if 59 months ago, my client gave away $580,000 worth of assets and she’s qualified now. I could apply right now and get her on Medicaid.

Should I do that?

If I apply right now and I’m qualified right now and I look back 60 months, what are they going to see? Right here about month 59, they’re going to see she gave away $580,000. There’s going to be a huge penalty.

To give you a real quick version of the penalty, you take whatever those gifts are, divide them by $5,800, that’s what Medicaid says is about the price of a nursing home. Then you go forward in time and that is your penalty, so 580,000 gift. Remember, I made that 59 months ago. I apply to qualify now. They’re going to penalize me 100 months into the future. It’s like 8 years. The key to understanding that look back is if you’re in a crisis situation right now and you’re trying to figure when do I apply right now?

In that situation, you would not apply right now. You would not apply the next month and go a little bit into the future so that when Medicaid looks back 5 years, they don’t see the $580,000 gift and that’s not wrong. That’s just following their rules. That’s the look back period and I hope that’s helpful to you.

Now, our next question is what is the maximum period that Medicaid can penalize us?

We’re familiar, again, if you listen to our last answer, there’s a 5-year look back period so I qualify for Medicaid. I apply for Medicaid. They look back 5 years. They total up all the gifts, divided by 5800 and the answer is the number of months going forward in time unpenalized.

The last example I used was $580,000 59 months ago. Let’s say I applied because I don’t really understand the law and I qualify. Then 580,000 divided by 5800 is 100. 100 months going forward in time. I’ve got to pay for the nursing home bill. People go, “that’s crazy!” I have a lawyer that say he can’t do that. There’s a 5-year maximum on the penalty. There’s no maximum. If you give away $5.8 million then I guess it would be, if my math is right, I got thousand months, what is that? I think that’s a lifetime. It’s a really long time regardless. There’s no maximum on the penalties so the key is in understanding the look back and understanding the penalty is controlling when do I apply for Medicaid assuming I’m qualified.

There are times when we’re qualified and we say I’m applying right now. I know a Medicaid looks back. They’ll see some gifts so they’re going to penalize me. That’s okay. I’ve taken that into account and I have a plan in place to pay for that because normally if somebody comes to us and mom or dad is already in the nursing home, if mom and dad are married, we can save usually 75, 85, maybe 90% of the assets. A single person, we can usually save about half the assets. We can definitely deal with this penalty period. Sometimes we do apply, we take the penalty. Other times we say, you know what, the penalty period would be so big,
we’re just going to continue to privately pay and then at the right time understanding the rules. When we apply and look back, we don’t see those gifts.

If Medicaid doesn’t see the gifts because they’re outside that 60-month penalty period or excuse me, 60-month, I’ll get it right, look back period then there’s no penalty. That is a real key point in understanding 60-month look back and then that be unlimited penalty period knowing when do you apply. If somebody comes to us before they’re in a crisis situation, they will say okay, here’s what we’re going to do with the assets because we know if we get in a situation where we’re in the nursing home how do we deal with that look back. How do we deal with that penalty? We have a plan in place.

Our next question is related to this. Is it illegal to transfer assets?

Now, that’s all that was said. I think what this means is in the context of Medicaid planning or VA pension planning. Is it wrong to give it away? No. It’s not wrong to give it away assuming the person giving it away has capacity, mentally they understand what they’re doing or if they don’t have capacity, somebody has a proper power attorney and they’re fulfilling that power of attorney in the correct way, then sure, you can give away assets.

If you give away assets and then you apply for Medicaid, like we talked about in the earlier answer, we apply for Medicaid. We’re qualified. They’re going to look back 5 years and say did you give anything away. If you did or if your parent or your brother, whoever we’re talking about, you got to say, yes. Now, it’s illegal to lie about it. That’s fraud but if you tell the truth and they say, “All right. Look back 60 months, did you give anything away?” if the answer is yes, you say, “Yes, I did. Here’s exactly what I give away.” If the answer is no, I did not give away anything in the last 60 months then you answer that no. That’s not illegal.

Now, there can be penalties. Right now as I’m recording this August of 2015, the VA does not have a penalty or a look back period but they’re trying to establish one. I think they’re doing it really outside of their power and authority but the word on the street is October 1st. They’ll start this and they’re going to do a 3-year look back period and then there will be a penalty going forward. We won’t get into all that right now but with Medicaid, you look back. There’s a penalty. There might be penalties involved just in the sense that it says okay, even though you qualify we’re not going to give you Medicaid benefits or not give you VA pension benefits because you gave stuff away but it’s not illegal to do that.

Our next question and I think I jumped the gun a little bit here is “what is the change of VA pension is taking about making on look back.”

Again, the VA has got say, “All right, if you qualify we’re going to a look back 3 years and did you give anything away.” Their rules right now are a little perplexing what they’re proposing because they match Medicaid but then they don’t and it seems to be a distaste for annuities and we use annuities in Medicaid planning. That’s long been allowed certain types of annuities to be used. It’s a little unclear what the VA is trying to do other than they don’t want people giving away assets and if congress passes that law, that’s fine.

Congress has not passed that law so the VA is trying to do it on their own but it will be if they do a 3-year look back period and then they’ll take, total up those assets that you’ve given away and again it’s a little confusing. It’s at the full amount of the assets or a partial amount. It may be a partial amount based on your total amount of assets that you have. Again, a lot of uncertainty about what the VA is trying to do but then the penalty period going forward us basically taking your pension right.

For a married couple, this could be about $25,000 a year. For a widow, it be about $13,000 even a single veteran, sometimes around 20,000 and that may use that number to give the number of years of penalty. We’ll keep an eye on that and I expect there to be a flurry of litigation about these changes coming to the VA pension. The bottom line is if you think you may qualify or a family member may qualify for the VA pension, probably smart to get on that right away because after October, the VA at least claims that they’re going to be enforcing and now creating this 3-year look back period.

We don’t know if you apply before October but if you’re not fully approved by the time October hits is the VA going to track and go back in time. Is it just a lot of uncertainty, a lot of language that I don’t think they intentionally did it this way but it’s very fussy language, very vague, ambiguous so we’re not sure what the VA is trying to do with that but we’ll definitely update you as we know more information.

Our next question is will a revocable living trust protect my assets?

I think they really mean their parent’s assets from Medicaid. Let’s say mom and dad, they put assets in to a revocable living trust and then later they need Medicaid, those Medicaid count those assets.

I have this very trustee little treasure chest here. This is a trust. Say mom or dad have cash, investments, they put in a revocable living trust.

First of all, what is a revocable living trust?

That is where the lid is open. You put money in and later I go I’m taking it back out. See, it’s still mine. I can revoke it. I can make this whole thing just go away anytime I want.

Does Medicaid count these assets? Does the VA pension, VA aid and attendance do they count stuff that’s in a revocable living trust?

Absolutely, because the rule is if I can reach in there and grab it then the VA can grab it, Medicaid can grab it.

Medicaid and VA would say, “Hey, those are your assets. Use them.” It definitely counts. We use something called an irrevocable trust or Medicaid planning, VA planning because once I put that in there, and then I apply for Medicaid or VA, Medicaid or VA say, “That’s still your asset.” I go, “No. Look, I can’t open it.” It has to be set up the right way. Follow all the rules of the proper type of trust but it can be done where that is put into an irrevocable trust and then it’s protected. Now, go back to our earlier question. If I put money into an irrevocable trust, I put my residence, beach house, lake house into a revocable trust. That’s still mine. It’s irrevocable. Now, that’s a gift because the trust didn’t pay me for that.

It’s a gift. I have to keep that in mind when I’m looking at, remember the 5-year look back period for Medicaid. Hopefully that answers the question on how does Medicaid, how does VA deal with a revocable living trust.

Our last question has to do also with revocable living trust, kind of a state planning in general, what do I think about? I know I want to set up a trust. What kinds of things should cross my mind?

I just met with somebody, I don’t know 2 hours ago maybe and we talked about this. Pretty sizeable amount of assets and the question is what do you want to do with your stuff?

If you’re disabled, if you pass away, one of your spouse’s passes away. What if you pass away and your spouse is still alive, what do you want to happen to your stuff? A lot of times when we ask that question, it’s like, “I want to get to my relatives. Okay, that’s good. Which relatives? We need to know. What percentage? Is it split equally, not split equally? What is it? Do you want them to get it immediately? I die and immediately that money goes to them.” That can be good or it could be bad depending on situations. What about if I’m married and I die, does all my stuff go to my wife and she owns it outright? A lot of people say, “Yeah, that’s great,” and that could be perfectly fine.

What if she remarries and then she sets up a will or trust that says everything goes to my new husband then she dies, what happens to my kids? The new husband may not want to give that money to my kids. Some maybe will say, “When I die, some I want to go to my wife, some I want to go to my kids.” You can do that. There’s no right or wrong answer. You just have to decide what’s best for you and think about the people you’re leaving this money to can they handle an inheritance? Are they in a stable marriage? Are they in a stable business, stable financial condition? Do you want it to be in a trust?” For example, it says, “Okay. When I die then this money immediately goes to a certain beneficiary, a child, a spouse, whoever,” or maybe say, “You know what, it’s going to say on this trust and we may even make it to where that child cannot get to that money instead a trustee, a person with a key has to give it to them to protect the money from creditors, divorces, bankruptcy, lawsuits, whoever it maybe.” The things that think about are what do you want to happen to your stuff? When do you want it to happen? There’s a tension between immediate access to that money, that inheritance and protection of that money, that inheritance.

If we say, “I want my child to be able to get to it, just immediately, at the funeral. They can grab them like, “Okay. That certainly makes it easy,” but it also means it’s easy to blow that money. It’s easy to lose that money. It’s easy to be sued or divorced or whatever it may be. They say, “I want it fully protected. I don’t want any spouse, ex-spouse, lawsuit, business partner to really get to that money.” Okay. That’s going to be hard for the child to get to it because whatever the child can reach and grab their creditors and predators can reach and grab.

Again, no right or wrong answer. You just have to think about these things and this is why sometimes people say what about LegalZoom or, I don’t know what the other one, Rocket Lawyer or something like that or going to Office Depot and get a formed will. Will that work? A lot of times it will. People say it’s, I don’t know, 200 bucks on LegalZoom. How much do you charge for a trust or a will? I don’t sell a will. I don’t sell a trust. What we sell is our process of helping you think through what do you want with your stuff?

I mean if you say, “I know exactly what I want and I want everything to be left to my wife and then once she dies, I want everything to go to my kids. Can you get that from LegalZoom?” Sure. Now, you’re not getting any counseling. You’re not getting anybody saying you do need to consider what if a child is disabled. What if your wife remarries? What do you want to happen to the money? All those things. When people hire a lawyer, that’s to get that counseling so you go here’s where I am, here’s where I want to get to. It looks like this is the quickest way but sometimes you might need to go like this because that’s actually the better way.

Those are just some things that they think about when you’re talking about estate planning in general. Now, my focus in this area of the law is really on elder laws. Most of our clients are coming to us. There’s been a crisis. Somebody is in assisted living and a nursing home. What do we do now? In the context of doing all that sort of stuff, we do wills, power of attorney, revocable living trust. It’s not pour focus but in order to do elder law which is up here, you’ve got to understand the more basic estate planning. I hope that’s helpful.

I think that is all the questions that we have. At least that we have time for this week.
Feel free to get in touch with us, 205-879-2447. We’re at alabamaelderlawyer.com or you can just leave a comment below this video about things we talked about or maybe a question you’d like to see us answer. We’ll be glad to do that. You can also find us on Facebook at Alabama Consumer Protection Attorneys and we have a lot of people that comment on there and post on there. You can also put a question on there. I look forward to chatting with you next week and thanks for watching. Okay. Have a great day. Bye-bye.

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