Elder Law Estate Planning in a Nutshell - Part One: Disability Planning

Preamble: Elder Law Estate Planning is All About “Control”

All of Elder Law Estate Planning comes down to one single word – and that word is “control”. By planning for our disability (elder law) and for our demise (estate planning) we are taking back control – from the courts and the government – and giving it back to ourselves and our family. Let’s look at how that’s done.

Part One: Disability Planning

Starting with disability planning, there can be an enormous difference between having your own plan for disability versus the state’s plan, known as “guardianship proceedings”. One of the primary reasons people choose trusts over wills is that trusts tend to avoid guardianship while wills do not. Unlike wills, which only take effect on death and therefor offer no plan for disability, trusts take effect while you’re living, hence the term “living trusts.” The benefit of having a plan that starts now, instead of at death, is that it allows you to choose who will take over your trust should you become disabled. This is a significant issue. Due to advances in medical science and nutrition, we have reached a point where more than half of all people will have a period in their lifetimes (usually late in life) where they can no longer handle their legal and financial affairs.

In a revocable living trust you put yourself or, for couples, yourselves in charge as trustees and then name who takes over as “successor trustee” should you become disabled – disability being proven by a letter from your treating physician starting in so many words that you are no longer able to handle your affairs. You may choose any number of successor trustees and may require them to act together or allow them to act independently on behalf of the trust.

Provided your assets are put into, or “re-titled”, to the trust, there is no guardianship required for those assets since disability is already provided for in the trust. Indeed, the judge has no jurisdiction over assets which you have placed in your trust. The effect of this is that should the client become disabled one day, an ever-increasing likelihood, then it is the people they chose who will be in charge and not the state-appointed legal guardian. The significance of this cannot be overstated.

What happens in the elder law practice when a client with a living trust becomes disabled? Generally, the successor trustee or trustees will contact the law firm to inquire as to their options and next steps. While the many options available in such a situation are outside the scope of this article, there are some general principles that apply. First, at least half of the assets may be saved, even on the nursing home doorstep, because your chosen representatives have the power to move assets out of your name. When it comes to Medicaid, it’s “move it or lose it”. The technique for saving assets on the nursing home doorstep is more fully described in the article entitled “Saving Half on the Nursing Home Doorstep: The ‘Gift and Loan’ Strategy” available on our website or in Chapter 29 of my book “Elder Law Estate Planning” available on Amazon. Sometimes, all of the assets may be saved, depending on circumstances. The point is, your family or whoever else you chose, since you are not limited to family members, are in control and they will act, with the advice of your elder law attorney, in your best interests.

Contrast the foregoing with what happens should you become disabled without a plan. Happens all the time. New clients routinely come in relating what has happened to their loved one, who has done no planning whatsoever, often saying something to the effect of “he was just ok” or “she was just ok”. Many fail to realize that everyone is ok until they are not ok. Now we have to explain the law of guardianship. While the full scope of guardianship would fill a book in itself, let’s look at a short synopsis. Application must be made to the court via a petition to have a legal guardian named. The petition will outline the mental and physical state of the alleged incapacitated person (the “AIP”) in some detail. The petition must be served by legal process on all interested parties. All this must be handled by a lawyer and the court will appoint a second lawyer to represent the AIP in the proceedings. The court will also appoint a “court evaluator” to meet with the AIP and prepare a report to the judge as to the extent of the AIP’s disability. The court will also require that the AIP appear in the courtroom or, in the judge’s discretion, the judge may go and examine (legally, not physically) the AIP in the facility if they cannot appear in court. All expenses of these proceedings, likely in the tens of thousands of dollars, are borne by the AIP and their family.

One would think that the family member petitioning for the guardianship would be named the legal guardian. However, this is often not the case. The judge may feel that the guardian has a conflict of interest in that whatever they spend of the AIP will come out of their inheritance. The judge may determine that the petitioner lacks the requisite knowledge or expertise to be a guardian. The judge may be faced with sibling rivalry as to who should be appointed guardian and, finally, the judge may simply want to choose someone else more to the judge’s liking, often a local attorney.

A recent report found that two-thirds of these guardianship proceedings are commenced by nursing homes and hospitals looking to take over control of an AIP’s assets in order to ensure payment for their services – and these applications tend to be looked upon favorably by the courts.

Once the legal guardian is appointed, after considerable time and resources have been expended, the guardian may only spend the assets on the AIP. So you end up with the state’s plan – spend it on mom or dad until there’s nothing left. Technically, the guardian may make an application for the judge’s permission to protect assets. However, guardians often fail to do this and, even when they do apply, the judge can turn the application down, an experience that this writer has had happen to one unfortunate client.

As you can readily see, having a plan for disability is essential to having “control”. You’re only as good as your back-up plan. And with nursing homes now costing up to twenty thousand dollars a month, without a plan for disability there may be nothing left for your family after you’re gone. In our view, it’s either you have a plan prepared by an experienced elder law estate planning firm, or it’s fingers crossed and hope for the best.

Part Two: Death Planning