Estate Planning for the Elderly
Estate planning involves a litany of legal documents and considerations. Depending on the size of the estate, plans can include legal documents such as wills, trusts, powers of attorney, and the like. As we age, different considerations come into play. As a result, it is always important to have any existing estate plan reviewed and updated periodically to ensure it continues to meet with your wishes and changing law. In this blog post, we will look at some of the basic estate planning documents that are important to have in place as we age. In Part I, we will look at the basic estate planning documents that everyone should have in place to protect themselves and their loved ones in the event of their incapacity or death. In Part II, we will look at other considerations, such as planning for long term care, that are often a primary concern as we age.
Part I Basic Estate Planning Documents
A. Medical Powers of Attorney
With the passage of HIPAA, doctors can no longer legally speak with loved ones about your medical condition or medical records without your permission. While this law works well when we are competent to make our own decisions, it can prevent loved ones from communicating with medical personnel if you are unconscious or otherwise unable to communicate your own medical decisions. As a result, one of the most important documents to have in place is a Medical Power of Attorney and HIPAA release.
Medical Powers of Attorney (sometimes referred to as Living Wills, Advanced Directives, or Medical Directives) allow you to set forth your wishes as to medical care and life prolonging procedures and to appoint someone to carry out these decisions in the event you become incapacitated. They contain the necessary HIPAA release so that your doctors and the person you appoint as your agent can communicate about your care. These documents make certain that your wishes are both known and carried out, and they can ensure a person of your choosing will be responsible for directing your medical care.
In the absence of having a medical power of attorney in place, if a person becomes incapacitated, a loved one or child must obtain a guardianship over the person in order to make decisions regarding healthcare. A guardianship is a relationship created and monitored by a court that takes away the legal rights of an individual who is incapacitated (who is called the Ward) and gives those rights to another person (who is called the Guardian). It is an expensive and lengthy process which takes away an individual’s rights, whereas a medical power of attorney preserves a person’s dignity and ability to make his or her own decisions about his or her own care.
Because these documents are so critically important, the Texas Department of Health and Human Services publishes free forms which can be filled out online. These forms can be found on their website at https://www.hhs.texas.gov/regulations/forms/advance-directives.
B. Financial Durable Powers of Attorney
Financial durable powers of attorney are legal documents that allow you to appoint someone to manage your financial affairs in the event you become incapacitated. A financial durable power of attorney (“DPOA”) can be limited to certain powers and certain assets, or it can be very broad and encompass broad powers over all categories of assets. Certain powers, like the power of an agent to make gifts or establish trusts on your behalf, are important considerations for long-term care and Medicaid planning as we age, and those powers must be specifically set out in the DPOA. As a result, the terms of a DPOA and the powers granted under a DPOA may change considerably over time and should be reviewed periodically to be certain they grant all necessary powers and will continue to carry out your wishes as you age.
If you do not have a Financial Durable Power of Attorney, your loved ones must obtain a guardianship from the Court to authorize them to manage your affairs if you are unable to do so. As discussed above, this process is expensive, time consuming, and does not guaranty the person you would want to handle your affairs is the person actually appointed by the court. In addition, to be appointed as guardian, loved ones must post a bond and may not qualify to serve for a number of reasons. In addition to avoiding the time and expense of a guardianship, a DPOA allows you to make your own decisions about not only who will act on your behalf, but also under what circumstances he or she may act and what proof of incapacity will be required for him or her to act. It allows you to make your own decision rather than have those decisions made for you by a court.
Just as with form Medical Powers of Attorney, the Texas Department of Health and Human Services publishes free form Financial Durable Powers of Attorney which can be found on their website at https://www.hhs.texas.gov/regulations/forms/advance-directives.
C. Wills
A Will is a legal document that spells out your wishes as to who will receive your assets when you pass away and designates someone (called the Executor) to pay your final debts and distribute your assets according to your wishes. When you pass away, the Will is filed with the probate court where you live, and the court appoints the Executor and assures your wishes are carried out.
If you do not have a Will, your assets are distributed according to the intestacy laws of the state in which you reside at the time of your death. In Texas, if you are married and have children, your estate will be divided amongst your spouse and children in varying percentages depending upon whether or not the property is considered community property or separate property and whether or not there are children from a previous marriage. The court will appoint an Executor to manage the estate, pay the debts, and distribute the assets according to state law; however, the Executor may have to post a bond before he or she can serve as Executor if the decedent did not have a Will.
Part II. Other Considerations
In addition to the basic estate planning documents discussed in Part I of this blog, as we age, certain other considerations can take on more importance such as passing assets or a family business to the next generation, tax considerations, and/or planning for long-term care. In most situations, different types of trusts can be used to accomplish these objectives. These trusts do not take the place of your Will, but rather are more complex planning documents that complement the basic estate planning documents discussed in Part I.
A. Business and Tax Planning
One consideration that many older clients have is how to best pass on their assets and business interests to their children. In 2022, an individual can pass up to $12.6 million on to his or her beneficiaries without being subject to the estate tax. However, unless tax laws change, this amount will drop to $6.2 million in 2025. Trusts can, in some circumstances, be used to increase these amounts or plan for the payment of any estate tax that is due.
There are also a host of other considerations, such as the age and maturity of the next generation, the need for professional management of assets, and/or creditor protection for beneficiaries. In addition, couples may want to consider adding provisions which protect in the event a surviving spouse remarries after the death of the first spouse.
B. Planning for Long-Term Care
Another primary concern of many elderly clients is planning for long-term care. Our population is living longer, increasing the likelihood we will require some type of assistance in our elder years. According to the 2021 Genworth Cost of Care Survey, 7 out of 10 people will require long-term care sometime in their lifetimes, and families are often more spread out, making it less likely that a loved one will be able to provide that care. The average monthly cost of care in Texas in 2021 was $3,998 for assisted living, $4,576 for in-home care, $5,125 for a semi-private room in a nursing home facility, and $7,092 for a private room in a nursing home facility. As a result, planning for how to pay for long-term care is a key component to planning for our welfare as we age.
One way to pay for long-term care is through the state Medicaid system. There are over 109 different Medicaid programs in the State of Texas, and eligibility is generally based on an individual’s age, disability, income and resources. In most cases, in-home care for the elderly is covered under the Star + Plus Waiver program in Texas, and benefits can include home care, assisted living in some circumstances, environmental adaptive aids, home modifications, medical care and supplies, personal care, physical and occupational therapy, and respite care. To qualify, an individual must have a medical necessity, a maximum gross income of $2,523 per month (in 2022), and a maximum amount of $2,000 in available resources. The same income and resource limitations apply in order to receive nursing home benefits.
There are three main concerns that often arise for couples when planning for long-term care. The first is the situation where the spouse requiring care has income in excess of the $2,523 cap for Medicaid eligibility but less than the cost of his or her in-home or nursing home care. In certain circumstances, excess income can be transferred to a spouse to qualify the individual. In almost all other circumstances, excess income can be transferred to a special kind of trust called a “Qualified Income Trust” in order to qualify an individual for Medicaid.
The second concern that frequently comes up for married couples is how to afford long-term care for one spouse (called the institutionalize spouse) and still have enough resources for the other spouse (called the community spouse) to be able to continue to reside in the community. As discussed above, the institutionalized spouse cannot have more than $2,000 in available resources in order to qualify for Medicaid benefits. The community spouse is allowed to keep one-half of the couple’s assets up to $137,400. In addition, the community spouse may keep certain exempt assets such as the couple’s homestead, a car, and personal property. This amount may be increased if the community spouse’s income is less than $3,435.
The third concern that can arise for older clients is how to preserve assets or business interests for children or future generations. When someone applies for Medicaid, a transfer penalty is imposed on any gifts made by the applicant in the past 5 years. As a result, assets can only be transferred to children or trusts for the benefit of children if they are done more than 5 years before we anticipate the individual will need long-term care. However, when done timely and in an appropriate manner, these strategies can preserve assets for children and/or set aside assets that the children can then use on the parent’s care later to supplement any Medicaid benefits they are receiving.
These are just a few of the complex issues that frequently come up for elderly clients, and there are a variety of planning alternatives depending on how far in advance planning is done, the type of assets owned, the type of care anticipated to be needed, etc. Each individual’s goals, wishes, and financial circumstances differ. However, we are here to help walk you through all of your options to help you decide what works best for you and your family. To schedule an individual consultation to discuss structuring a plan that meets the individual needs of you and your family, please contact our office, and we will be happy to assist you.