Analyze The Risk
For most traditional law school students, Medicaid and its statutory underpinnings are not on the radar. Most law schools offer classes in estate planning, yet most often, Medicaid is not integrated into that training. For that reason, many attorneys are poorly equipped to understand how their client’s estate planning may be undermined or decimated if the estate planning attorney fails to address the possible costs of institutional care in those plans.
If you are engaged in estate planning and you fail to consider Medicaid and its implications for your clients, you may be at risk of committing legal malpractice. If a client seeks your services to pass their property on after their death to their loved ones, but they may be at risk of being institutionalized before they die. If you fail to consider how it might decimate your client’s estate and counsel your client – hold on, and be prepared to contact your malpractice carrier.
In my earlier post, “Long Term Care Costs – The Legacy We Fear?”, I detailed the potential risks that many seniors over 65 will face as they age and experience debilitating conditions that require institutional care. $250,000 to $400,000 in expenditures are not uncommon. As your clients age and experience chronic medical conditions like Alzheimers disease, or diabetes, the likelihood of those expenditures increases exponentially. As the average age of the American population continues to increase and the prevalence of chronic conditions follows that trend, competent estate planning attorneys need to be aware of the costs of institutionalization of their clients. You need to be aware of the potential impact it may have on their total net worth. In Michigan the average cost of nursing home care exceeds $8,000 per month. Nearly half of those costs are funded by Medicaid not Medicare. If you don’t know the difference, you need to learn why Medicaid, and not Medicare, is the more likely source of funding for long term care. The 90 day limitation on funding for Medicare, in most situations, limits it as a resource for long term care. Medicare is not “means tested”. In other words, individuals who have the financial “means” to pay are still covered without consideration of their assets or income.
However, Medicaid is “means tested”. To qualify, among other things, you need to establish that you qualify for medical welfare and that you do not have the means to pay under that program’s financial test. It is this financial test for assets and income that often determines whether a person qualifies for coverage. Remarkably, this is coverage without limitations in duration or expenditures. But that coverage can be undermined by the attorney’s misfeasance or malfeasance in this area of practice. What may seem to be seemingly inconsequential, or even advantageous planning advice, can be malpractice once Medicaid eligibility is factored into the equation.
Certain planning options, which may disqualify a client from eligibility for Medicaid, might include placing a client’s home into a living trust. Simply transferring assets from the client to someone else as a sole owner or joint owner, selling property on land-contract may disqualify them from hundreds of thousands of dollars of benefits. Failing to inform the client of a requirement for a written services contract may be malpractice. When a close family member provides a family member with in-home care services which that caregiver wishes to be compensated for those services, without a written contract, it may be difficult to obtain compensation. Failure to counsel the client or counsel’s family, can be malpractice. But, the rules vary from state to state. Medicaid is a joint state and federal government cost-sharing program. Each state has its own rules. For that reason, you need to determine the rules for your state and constantly monitor them to stay current as they often change.
Because the rules are extensive and require frequent examination to stay current, most Medicaid practitioners specialize in this area of the law. However, that doesn’t relieve you of the responsibility of examining a client’s estate plan in light of those rules if they are likely to be impacted by those rules. It is like tax planning and avoidance. A personal injury attorney who obtains a significant judgment in favor of his or her client may not do tax planning as part of his practice. But failing to counsel a client regarding structured settlements to minimize their tax liability is malpractice if that award would significantly impact the client’s award. The personal injury attorney may not do tax planning, but that attorney needs to advise the client to seek tax planning assistance or do a referral with an attorney who does that type of work. Failure to advise the client to do so would be malpractice.
The same rule applies when a client seeks estate planning and preservation advice. To ignore the potential impact of institutional costs when planning for the client requires an evaluation and assessment. This must be done to determine if there are planning options which might allow the client to preserve significant portions of that estate. This is particularly true when that client is at significant risk of dependency on long-term care costs. But, how do you know who needs it and who may not?
What follows is a simple pneumonic, “G.A.M.E.S.” which I developed to train my students how to evaluate a client’s risk factors to determine if Medicaid planning or counseling is in order. These factors are primary considerations when doing the assessment and are not all inclusive. However, these factors will help you to see if further investigation is warranted by an attorney competent to practice in this area of the law. None of these factors are given numerical values or specific weight. However, if after doing the assessment you are left with a feeling that many or most of them point to dependency on institutional care and Medicaid dependency, then you should take the steps necessary to help the client find appropriate counseling.
The factors are as follows:
G – Goals of the client.
If the client does not wish to be dependent on medical welfare and understands that he or she might be exposed to significant expenditures out-of-pocket as a result, then Medicaid planning is not in the equation. But make sure you get documentation that you advised the client of that option and that they declined to seek that assistance if most of the other factors point toward dependency on institutional care in the future.
If on the other hand, the client wishes to preserve their assets and pass them on to their kin, if the client wishes to be eligible for those benefits later, then continue with the assessment in light of your clients goal as Medicaid is still in play.
A – Age of the client.
As the client ages, their risk of institutional care increases as well. Over 2/3’s of people who reach 65 years of age will be institutionalized at some time in their lives. That percentage increases substantially as the client ages due to medical conditions which require institutional services which occur more frequently as an individual ages.
The age of the client is a factor if they are young enough to afford long-term care insurance. Usually, a person 50 years of age and younger will find LTC insurance most affordable. As an individual ages the cost increases dramatically.
Also, the age of the client is a factor when considering possible changes in the law. A client at age 40 is far enough removed from their possible eligibility at 65 years of age that counseling a client on Medicaid essentials may be an exercise in futility. The law is very likely to change significantly before that time. A client at age 80, however, is much more likely to be affected by the current rules than the younger client. Age matters.
M – Medical Condition/History of the client and client’s family.
Clients who have experienced medical conditions which are progressive and chronic are much more likely to see the inside of a nursing home than a client who has experienced good health. Chronic conditions such as diabetes or Alzheimers disease, as distinguished from acute conditions like a heart attack, more frequently lead to institutional care. Also, you need to consider the family history for heritable conditions which may lead to long-term care requirements later on. Also, consider morbid obesity and other conditions that may require institutional services, for instance, as family members may not be able to maneuver them within their own home without specialized services.
Medical conditions may also disqualify individuals from long-term care insurance. An individual diagnosed with early dementia will find it very difficult to find insurance. And if they find it, it will likely be cost-prohibitive.
E – Estate Size/Character of Assets.
The client’s ability to pay for long term care without significantly depleting the assets of their estate is another factor. Most clients with over $500,000 in liquid assets can usually sustain long-term institutional care costs without too much difficulty. However, there are exceptions to every rule. However, for clients with significant assets, a conversation is in order to see if they wish to purchase long-term care or self-insure against those expenses. For clients without significant liquid assets, this conversation is critical. Many of them will say, I will never go into a nursing home. However, circumstances may dictate that they will end up there because other family members cannot give up full-time employment or move from distant locations to care for a family member, even if they wish they could. For these clients, a heart to heart conversation regarding the real risks going forward is critical. And planning may be essential to leave anything to their kin.
The character of the assets is important as well. Because a person has a large estate doesn’t mean they will be disqualified from Medicaid eligibility. Many assets are not countable under the Medicaid rules. One example I use for my students is a comparison of two women both over 65 years of age. One has nearly a million dollars in assets and the other has a little over $5,000 in assets. The client with the small estate is not eligible because she has “countable” assets in excess of the limits allowed whereas the client with the large estate is eligible because all of her assets are non-countable. Taking the primary residence which is not countable (within certain $$ limits) and placing it in a living trust makes it countable. So care must be exercised in the state where you practice not to do harm by converting a non-countable asset into a countable asset.
S – Sex (gender of the client).
I couldn’t use “gender” or the pneumonic wouldn’t work. Gender matters. If you don’t think so, visit a nursing home and you will see, with possible rare exceptions (VA senior housing), the vast majority of residents are female. All things being equal, if you have male and female spousal clients and you were advising who should be insured for long-term care insurance, it should be the female spouse. Women outlive most husbands and care for their husbands at home. It is the female spouse who ends up in the nursing home, not the husband.
Consider each of these factors and use them as a guide to help you discern who should be referred to a competent Medicaid planning attorney. If you are engaged in that area of specialization, this information is fairly basic and will only serve as a review. I hope all of you find it to be helpful in doing your assessment.