Estate Planning for a Disabled Spouse

Estate Planning for a Disabled Spouse

Caring for a spouse who suffers from physical and/or mental decline can be an overwhelming task. The healthy spouse often spends the majority of his or her time ensuring that the care needs of their spouse are met. Faced with this daily struggle, it is all too easy for the couple to put off the crucial task of reviewing and updating their estate plan. Below is a list of some of the important estate planning documents that should be reviewed and possibly updated under such circumstances.

1. Wills.
Spouses often have wills that leave all of their property to each other upon the first of their deaths. While such planning makes sense when both spouses are healthy, it may not be the most appropriate planning if one spouse would likely enter a long-term care facility if his or her spouse dies and is no longer able to care for him or her at home. Given the high cost of such care, many individuals often turn to Wisconsin’s Medicaid program to help pay for such care. However, this program has strict financial eligibility requirements that limit the amount of assets an individual can have and qualify for benefits. The program allows a married couple to keep additional assets when one of the spouses lives at home (a “community spouse”), but such protections are lost if the community spouse predeceases the spouse who resides in a long-term care facility. Without further planning, those additional assets would then need to be spent down on the spouse’s long-term care. One way to avoid this outcome is for the community spouse to update his or her will to leave such assets to a testamentary supplemental needs trust for the benefit of their spouse, rather than to their spouse outright. Current Medicaid law provides that assets held in such a trust are exempt and that funding such a trust is not considered a disqualifying divestment. This can also avoid a “divestment by death” since Medicaid law now considers it to be a divestment if a community spouse transfers assets for less than fair market value in the five years after (rather than just the five years before) his or her spouse becomes eligible for Medicaid. The assets in the trust are then available for the spouse’s benefit and any assets that remain at his or her death can be distributed to the couple’s children or other beneficiaries.

2. Marital Property Agreement.
Wisconsin is a marital property state and spouses can sign a marital property agreement classifying their assets as either marital property or the individual property of one spouse. While marital property agreements are disregarded for Medicaid eligibility purposes, they can be useful tools in protecting assets from estate recovery. Federal law requires every state to have an estate recovery program allowing for recovery of amounts paid on behalf of recipients for certain Medicaid benefits, including long-term care services. Due to a recent change in estate recovery law, estate recovery claims may now extend to marital property in a surviving spouse’s estate. Spouses may reduce the likelihood of a successful estate recovery claim by signing a marital property agreement classifying their assets as the individual property of the healthy spouse.

3. Durable General Power of Attorney.
A durable general power of attorney is used to appoint an agent to make financial decisions on your behalf. Generic durable general power of attorney forms are often missing important provisions that would allow the healthy spouse to engage in Medicaid planning as agent on behalf of the disabled spouse. Without these specific provisions, the agent is often prevented by law from engaging in such planning. The authority to make gifts is perhaps the most important power that should be included in a power of attorney for Medicaid planning purposes. Restrictions may be placed on this authority, such as the requirement that certain individuals in addition to the agent must consent to the gift, but if gifting authority is not otherwise included, or is limited by amount, the agent may not be able to implement necessary Medicaid qualification planning. Also, since marital property agreements can be important Medicaid planning tools as discussed above, allowing the agent authority to enter into or amend such agreements can be helpful and provide added flexibility for your spouse. It is also important to authorize the agent to create and fund certain types of trusts on a spouse’s behalf that may assist him or her in qualifying for Medicaid, such as special needs trusts and other irrevocable trusts. Finally, it can be beneficial if the agent has a limited ability to update beneficiary designations in case such designations need to be changed in response to such Medicaid planning.

4. Health Care Power of Attorney.
It is crucial that the spouse experiencing physical and/or mental decline has a health care power of attorney in place that authorizes his or her spouse (or another individual) as agent to make health care decisions on their behalf if they become incapacitated. Additionally, if the healthy spouse has the disabled spouse named as primary agent, he or she should consider whether to update his or her power of attorney to name a different primary agent who is in a better position to make such decisions, such as a responsible adult child or family friend.

The potential long-term care costs that accompany a spouse’s physical and/or mental decline make advance estate planning all that more important. In particular, if your spouse is diagnosed with dementia or the early stages of Alzheimer’s disease, he or she may eventually lose their capacity to prepare or update estate planning documents. Accordingly, it is important that such estate planning documents be prepared and/or reviewed as soon as possible.

 

I Signed My Will, Now What?

I Signed My Will, Now What?

Completing your estate plan for the first time is a significant milestone.  It means that you have taken an important step forward in planning for your family’s future.  Our clients often breathe a sigh of relief after signing their estate planning documents, knowing the plans they have often long discussed are now finally in place.  However, just because you have signed your documents does not necessarily mean your estate plan is complete.  There are often a variety of tasks we recommend you complete after signing your estate planning documents to ensure your plans are fully realized.

1. Update Your Beneficiary Designations. After signing your estate planning documents, we recommend you review the primary and contingent beneficiary designations you have listed for your (i) life and accidental death insurance policies, (ii) retirement plan, pension plan, 401(k) plan, IRA and profit sharing plans, and (iii) any other contract, annuity, deferred compensation arrangement, policy or plan where a benefit is payable to a named beneficiary upon death. Most of these contract payments pass outside of the provisions of your will or trust directly to the named beneficiary identified in the beneficiary designation form.  This means that simply updating your will or trust does not necessarily change the beneficiary of such contact payments.  It is often necessary to update these beneficiary designations to ensure such payments will be made to your intended beneficiary and coordinated with your overall estate plan.  Your attorney should discuss with you his or her recommendations for updating your beneficiary designations after you complete your estate plan and can often help you to do so if you have any questions.

2. Prepare a List of Tangible Personal Property Bequests. Under Wisconsin law, you can incorporate certain language into your will that allows you the ability to leave a written statement or list disposing of items of tangible personal property at the time of your death. This list is separate from your will, and you can prepare it on your own if you wish.  This provides you with increased flexibility to update such bequests.  The list may only dispose of tangible personal property, such as jewelry, household furnishings, etc., and may not dispose of monetary assets.  To be enforceable, the list must describe the items and their recipients with reasonable certainty, and it needs to be signed and dated by you.  However, if you anticipate any disagreement among the beneficiaries, you can certainly have the list witnessed or notarized.  You may change or revoke the list at any time.  If you choose to prepare a list and decide to subsequently change it, we recommend that you destroy the old list and prepare an entirely new list.  You should always avoid erasing or crossing out prior entries on your list because this can lead to confusion regarding your intentions and possibly compromise the enforceability of the list.

3. Prepare and Maintain a Current List of Assets and Liabilities. We recommend that you regularly maintain a list of all of your substantial assets (home, checking and savings accounts, investments, retirement plans, or otherwise) and liabilities. We also suggest that you maintain a list of your insurance policies, policy numbers, and the name of the agent for each policy.  By regularly maintaining such lists, the person handling your estate will have accurate information regarding your assets and liabilities, and this can significantly increase the ease and efficiency with which he or she can settle your estate.  These lists should be updated at least annually and be kept in a safe and secure location where the person handling your estate knows how to access them.

4. Review and Update Your Estate Plan as Needed. The estate plan which is appropriate for you now may not be suitable years from now. We recommend that you contact your attorney and review your estate plan when any one or more of the following occur (i) when you move from Wisconsin to another state, (ii) when there is a change in your family circumstances (divorce, marriage, death of a child, marriage of a child, new grandchildren, incapacity of spouse or children, etc.), (iii) if there is a significant change in the law which may have an impact on your estate, and (iv) finally, even if you do not have a change in family circumstances or finances, it is advisable to regularly review your estate planning documents to make sure that they are a current statement of your preferences regarding the disposition of your property upon death.

The above recommendations are general tasks that should be completed in most all estate plans.  However, there may also be specific tasks that need to be completed that are unique to your individual estate.  Be sure to discuss with your attorney what tasks need to be completed after your estate planning documents have been signed to ensure your estate plan will fully accomplish your goals.

 

Taking Control of Your Estate Plan

Have you ever considered making a will or a revocable trust? Did you ultimately find a reason not to do so? If so, according to a recent survey by Caring.com, you are not alone. The survey indicates that only 42 percent of U.S. adults have estate planning documents such as a will or revocable trust. When the survey results are divided into age groups, it is apparent that people often delay getting these important documents until later stages in life.

The survey also notes that people have a variety of reasons for not preparing an estate plan. Forty-seven percent of respondents without an estate plan stated that they “just haven’t gotten around to it.” On the other hand, 29 percent of respondents indicated that they “don’t have enough assets to leave anyone.” While these reasons are not surprising, they do overlook the crucial importance of having these documents in place at any stage of life. Thinking about your own mortality is not fun at any age, but there are many reasons why everyone over age 18 should have an estate plan in place.

Be in Control of Who Receives Your Assets

First, preparing a will or revocable trust allows you to control the distribution of your assets upon your death, even if such assets are modest. You are able to name the beneficiaries who inherit your assets. If a person dies without a will or other estate planning, most states, including Wisconsin, have a default statute which controls who then inherits his or her assets. The people named to inherit as heirs under the statute may not be the same people who the decedent would have otherwise chosen if he or she prepared a will or revocable trust.

Be in Control of How your Estate is Handled

Second, if an estate needs to go through probate to be settled, having a will can often make the process simpler and less expensive for your loved ones. Probate is the court process used to settle a person’s estate if they have over $50,000 in solely-titled assets at the time of their death. If a person has a will, their estate is often eligible to be administered informally, which avoids the need for court hearings. Also, you are able to name in a will who you want to be in control of handling your estate. This person is called your “personal representative.” A will allows you to name a person you trust to serve in this role who has the necessary skill and time to do the job well. Finally, when meeting with an attorney to prepare your estate plan, you can also discuss various planning options to avoid probate all together, such as using a revocable trust.

Be in Control of Who Takes Care of Your Children

Third, if you have minor children, having a will is critical. It allows you to name a guardian to take care of your children in the event of your death. You can also incorporate trust planning into your estate plan so that the assets your children inherit are preserved for their benefit until they reach an age at which you feel comfortable having them manage such assets on their own.

Be in Control of Who Takes Care of You

Finally, when people think of putting together an estate plan, they often first think of preparing a will or revocable trust and planning for the event of their death. However, planning for the event of your incapacity through the use of a durable general power of attorney and health care power of attorney is equally important. These documents allow you to control who makes decisions for you if you become incapacitated and can no longer make such decisions on your own.

Despite the perception that only the elderly or the rich need estate plans, having an estate plan in place is crucial at any age to ensure you control important decisions regarding your life and your assets. Such proactive planning also allows you to make the process of settling your estate as simple as possible for your loved ones and ensures that your wishes will be carried out. These important decisions should not be left up to chance.

Medicaid Program – Partial Repeal of Wisconsin Act 20

On June 30, 2013, the Wisconsin Legislature passed Wisconsin Act 20. As noted in our fall issue, the new law dramatically changed certain aspects of the State’s Medicaid program for individuals who need long-term care. In general, the changes were aimed at allowing the State broader authority to recover funds paid on behalf of long-term care Medicaid recipients. Wisconsin Act 20 impacted a wide variety of laws, including laws relating to estate recovery, trusts, jointly-held property and life estates. The Act was accompanied by much controversy, and both the Elder Law Section of the State Bar and Wisconsin’s Chapter of the National Academy of Elder Law Attorneys advocated for a repeal or partial repeal of the new law.

As of this past December, the Wisconsin Legislature enacted a partial repeal of Wisconsin Act 20. The partial repeal is contained in Wisconsin Act 92, which adopts a modified version of the Uniform Trust Code and was enacted on December 13, 2013. Below is a summary of the provisions that were repealed.

  1. Wisconsin Act 20 provided that “exempt” assets (assets that do not impact a person’s eligibility for Medicare) could not be transferred to another person without the imposition of a divestment penalty. This provision has been repealed.
  2. Section 49.453(4c) of the Wisconsin Statutes, which was enacted under Wisconsin Act 20, imposed a divestment penalty on persons who entered into a promissory note or loan agreement with a “presumptive heir,” such as a child. This provision has been repealed.
  3. The provision that expanded the definition of what property may be subject to a claim by the State for recovery of funds paid on behalf of a long-term care Medicaid recipient has been amended to include “revocable trusts” rather than “living trusts,” and irrevocable trusts are now specifically excluded.
  4. Under Wisconsin Act 20, the State was allowed to recover funds paid on behalf of a long-term care Medicaid recipient from the estate of his or her surviving spouse using all real and personal property in which the surviving spouse had an ownership interest at the recipient’s death, including a marital property interest the surviving spouse had at any time within five years before the recipient’s application for benefits. This provision has been repealed.
  5. Wisconsin Act 20 also precluded the State from issuing undue hardship waivers to prevent recovery from the estate of a non-recipient surviving spouse. This provision has been repealed to allow waivers for hardship.
  6. The provision that allowed the State to void certain transfers of real property under Wis. Stats., § 49.4962, has been repealed.
  7. The provision that allowed the State to record a “request for notice” if certain real property in which a long-term care Medicaid recipient has an interest is transferred or encumbered has been repealed.
  8. Wisconsin Act 20 required trustees to provide the State notice of the death of a living trust settlor if either he or she, or his or her predeceased spouse, was the recipient of long-term care Medicaid benefits. This provision has been repealed.
  9. The requirement that trustees provide the State notice of the death of a beneficiary of a self-settled special needs or pooled trust if he or she was the recipient of long-term care Medicaid benefits has also been repealed.
  10. Wisconsin Act 20 held trustees personally liable to the State for any costs incurred in recovering funds paid on behalf of a long-term care Medicaid recipient from property distributed from the trust before any repayment to the State was made, and for any funds that the State was unable to recover from the persons to whom the property was distributed. This provision has been repealed.
  11. The provision that allowed the trustee of a pooled trust to retain only 30% of the balance of the trust after the death of a beneficiary who was the recipient of long-term care Medicaid has been repealed.

While the above provisions have been repealed, many of the changes that Wisconsin Act 20 made to Wisconsin’s Medicaid laws remain in effect today and have important implications for long-term care planning.

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